Annuities held inside an IRA or 401(k) are subject to RMDs. Conversely, nonqualified annuities, funded with after-tax money, have no withdrawal requirement.

How do RMDs work with annuities?

An immediate annuity results in an instant stream of payments, usually paid out over the buyer’s life expectancy. A lifetime stream of payments essentially covers the RMD for the portion of the IRA money invested in it. The $100,000 is turned into a stream of payments and is excluded from the RMD calculation.

What questions to ask before buying an annuity?

4 Questions to Ask Before Buying an Annuity

• What kind of annuity is it?
• How much will the annuity cost?
• What are the tradeoffs?
• How will this annuity work with my other income?

Can you reinvest RMDs?

Although your RMD can’t be reinvested back into a tax-advantaged retirement account, you can put money into taxable brokerage accounts and then reinvest your RMD proceeds according to a strategy that fits your needs. There are several tax-smart ways to pass money to your loved ones.

What’s the minimum required RMD for a SPIA?

Assume you’re 70 and have a $1 Million traditional IRA. The IRS requires you to take out 3.6%, or $36,000 as your required minimum distribution. If you decide to buy a SPIA with $200K, your traditional IRA now has $800K in it, and your RMD is $28,800.

What do you need to know about RMDs for IRA?

The IRS provides important taxpayer information about RMDs, including FAQs, a chart that highlights some of the basic RMD rules as applied to IRAs and defined contribution plans, and resources to help you accurately compute your annual RMDs.

Can a SPIA be invested in a taxable account?

You can also take the required RMD out of the IRA and invest it in a taxable account without spending any of it. All the IRS requires is that you take out the RMD. They don’t care how much you spend. An individual retirement annuity is the ideal way to hold a SPIA purchased with tax-deferred money.

How much is the SPIA paying out per year?

The SPIA is still paying out $16,240 per year. So your taxable income is now $60,100. Notice that the RMD on an Individual Retirement ANNUITY (the annuity payment) is larger than the “RMD” from an individual retirement ARRANGEMENT in the early years, then eventually becomes lower as you can see in this chart: