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On Fidelity.com, under “viewpoints.retirement,” one currently finds a post titled “Create Income That Can Last a Lifetime” (https://www.fidelity.com/viewpoints/retirement/income-that-can-last-lifetime). At the end of that post, there is a note on “RMDs and annuities,” which states, in part, the following:
The SECURE Act 2.0 that went into effect in January 2023 allows IRA income annuity owners the choice to aggregate their income annuity with their other IRAs for the purposes of determining their required minimum distributions. If you are 73 and older, cash flow generated from the income annuity can be used to potentially offset RMD obligations from other accounts, allowing assets within these other accounts to remain invested and grow tax-deferred.
I have a deferred annuity kicking in this December, and my first RMD year will be 2025. I am curious to know whether any HD writers/readers currently subject to RMDs and receiving annuity income can confirm that this “strategy” is, in fact, possible. Of course, I would also be delighted if any other HD writers/readers can shed useful light on the topic. Fidelity couches their statement in terms of “potentiality” and the ubiquitous advice to consult a tax specialist (an individual I do not employ).
This is my first HD post/comment, though I have followed the site almost from the beginning, and Jonathan since the WSJ days. I owe him much credit for educating me into my successful investment strategy over these many decades, and I can only add my wishes to those of the hundreds of others that his current dire circumstances will turn out better than any of us could be expected to hope.
Chris M.
The IRS released the long-awaited, much-anticipated new Final Regulations for Required Minimum Distributions on July 18, 2024. Here’s the link that explains the clarification of the Secure 2.0 Act. You’ll have to scroll down to the section titled, “Treatment Of Annuities Within Retirement Accounts And Other Rules Under The New Regulations”.
https://www.kitces.com/blog/secure-act-2-0-irs-regulations-rmd-required-minimum-distributions-10-year-rule-eligible-designated-beneficiary-see-through-conduit-trust/
Initially, the Secure 2.0 Act only allowed participants in an employer plan who hold an annuity to aggregate the annuity’s value with non-annuity assets to calculate their RMD. However, the July 18, 2024 Final Regulations extend the treatment to IRAs as well.
“Individuals who own annuities within IRAs can aggregate their annuity and non-annuity IRA assets together to calculate their RMD and count the entire amount of their annuity payments against that RMD total.”
Note: QLACs are handled different as noted in the comments below.
Thanks so much for this information, Cheryl! Glad the question had not receded too far down Forum river. I look forward to reading the (I assume) stultifying IRS regulation.
A really good link to the article on the Kitces blog. Thanks Cheryl.
My expectation is that in early 2025 that Chris should receive two IRS 2024 forms 5498 with one showing the 12/31/2024 fair market value of the annuity in that tIRA and the second 5498 showing the fair market value of the non-annuity assets in that tIRA. Those combined IRA values, plus any other tIRA account that he may own, are used by Chris (and the IRS) to determine if the RMD requirements were met for tax year 2025 and if not the amount of any penalty for failure to take his RMD.
Usually the end of year FMV is located in box 5 but for some assets the FMV is reported in box 15a. A link to the 2024 draft 5498 follows-
https://www.irs.gov/pub/irs-pdf/f5498.pdf
Best, Bill
Thanks, Bill. My first RMD will be in 2026, so will adjust your comment to that time frame. Is the annuity still considered within the tIRA? The funds did come out of my tIRA but the annuity is listed elsewhere among my various Fidelity retirement accounts. In any case, my Fidelity advisor told me a month or so ago that he assumed that the value of all of my accounts (e.g., 401k, 403b, SEP-IRA) along with the annuity (figured at what might be called its “face value”–sorry for that technical financial term) could be aggregated to calculate the RMD amount, and then count the distributions received from the annuity, which start this December, toward the RMD amount for the 2025 tax year (so, 12 months of annuity income, a decent chunk of the total RMD obligation).
PS: I don’t seem to remember how to get back into my previous credentials, hence the different posting name.
PPS: Looks like I “miswrote”; I’ll take the first RMD in Dec 2025 (rather than do 2 in 2026)