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Question:


Does an immediate annuity purchase escape taxes required by the RMD?
-JBertin


Answer:


The required minimum distribution, or RMD, refers to withdrawals that must begin from certain types of retirement plans by April 1 in the calendar year after you turn 70 years and six months, unless you’re still on the job and participate in your employer’s plan. (To determine the amount of the required distribution, consult Appendix C of IRS Publication 590.) If you do not begin receiving payments by the prescribed date, the law calls for a tax equal to 50 percent of the difference between the amount of the required distribution and what you actually receive.
 
If I understand your question correctly, you want to know if you can put off taking the required distribution and avoid the tax by routing money instead into an annuity contract – a vehicle that provides periodic payments for a fixed number of years or the rest of your life and perhaps the life of your spouse. The short answer appears to be “no.” The key action as far as the IRS is concerned is not the purchase of the annuity, which is essentially a shuffling of your pension assets from one place to another, but the distribution of assets to you.
-Conrad de Aenlle



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