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Annuity RMD: Who Cares Other Than the Ultra Rich

Stan Haithcock
February 20, 2023
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Required RMDs and Annuities

Today we are talking about annuity RMDs. Who cares about that other than the ultra-rich people with these huge IRAs, etc.? I saw something the other day where the amount of people whose 401ks and IRAs have gone past a million dollars is a lot, and it is a boatload, as they say. But we're going to go through RMDs and what RMDs mean. Required Minimum Distributions, but from here on in, it's RMDs.

All right, so let's talk about RMDs, Required Minimum Distributions. And you probably already know. If you don't, this is an excellent little refresher course. Require Minimum Distributions, is the IRS tapping you on the show to going, "Hey, hey, hey, hey, hey, you've been deferring, deferring, deferring, deferring, deferring for all this time, and now you're 73." At the time of this blog, 73 is the age that the IRS taps you on the shoulder and says, "You have to start taking money out of your Required Minimum Distribution of your IRA-qualified accounts. It's called a Required Minimum Distribution, and you have to take money out so we can charge you taxes on it so you can pay taxes to the government." That's a Required Minimum Distribution, and it's not negotiable. You can't say, "Well, I don't really need the money." No. They're tapping you on the shoulder and saying, "Hey, based on..." And they'll send you the charge, and you can go to and look all that stuff up. We won't go through all that nonsense, but the bottom line is the older you get, the higher their percentage because they want you to take more money out so they can charge more taxes. That's the bottom line. You should look at Required Minimum Distributions as an income source when you turn 73 because it is. You're going to have to take money out of that qualified account. Period. Whether you want to or not. That's going to be an income source. The IRS doesn't care where you take the RMD from, and you could have multiple IRAs scattered across the board. They don't care. They want to know the total amount, and then they want you to take the percentage from somewhere, one of those IRAs, to pay them so they can charge you taxes.

With annuities, you can circumvent a few things with RMDs, but at the end of the day, you got to pay The Man. Now there's what's called a Qualified Longevity Annuity Contract that was put on the planet by our friends at the IRS and the Treasury Department. That's who created it. For use in your qualified, your traditional IRA-type accounts, not a Roth. You know, 401k, IRA, those types of things. Those are qualified accounts. But at the end of the day, you have this traditional IRA, your IRA, and you can buy a Qualified Longevity Annuity Contract for future income at a date as far out as age 85. That is a legal way to lower your Required Minimum Distribution amount because that amount of money is not used to determine your Required Minimum Distribution. For example, let's say you have a million-dollar IRA. At the time of this blog, the funding rule for Qualified Longevity Annuity Contracts is that eligible participants can use up to $200,000. So, with a million-dollar IRA, you can fund a QLAC with $200,000. Now, when you determine your Required Minimum Distribution, that $200,000 in a QLAC, is not used as part of the overall asset. You can lower your required taxes on your Required Minimum Distributions because you're using less money. Does that make a QLAC a no-brainer that you have to buy? No, it does not, but it's something for you to consider because you can add your spouse for joint lifetime income. But Required Minimum Distributions, the bottom line is you have to take them.

Non-QLAC Scenario

Now let's look at another scenario in a non-QLAC scenario. Let's say you need immediate income with a Single Premium Immediate Annuity, and you still have that hundred thousand dollars IRA. You can, let's say you said, "You know what, I need a hundred-thousand-dollar Immediate Annuity using IRA assets." That income stream coming from that immediate annuity fully satisfies the Required Minimum Distribution for that Immediate Annuity asset. So, it doesn't have to be a Qualified Longevity Annuity Contract. The bottom line is if you need lifetime income using IRA funds, you can either use a QLAC and defer it or an Immediate Annuity for Immediate Annuity income inside of an IRA.

If anyone says, "Never bond annuity in front of an IRA." Point out that the IRS and the Treasury Department developed an annuity for use inside of an IRA. So, the people that are saying that, they're in a time warp. They are in a time warp or cognitive decline, or they're just not a smart financial journalist or financial advisor that doesn't know any better, and they just cart blanches like, "Never bond annuity in front of an IRA." That's not intelligent. Of course, you can if it makes sense for you and you are trying to solve for a specific goal. I always ask people two questions. What do you want the money to contractually do? When do you want those contractual guarantees to start? If you said, "Well, I have an IRA, and I might need income in the future." Then we look at a QLAC. If you say, "Well, I need income now®." Well, then we look at a Single Premium Immediate Annuity.


Let's talk about inflation and using these types of annuities as well. Some people are taking Qualified Longevity Annuity Contracts and splitting up that $200,000. At the time of this blog, that's the funding maximum you can put in, and they're splitting it and having a portion start at age 75 and then a portion start at age 80, and then a portion of that QLAC money started at age 85. So, 75, 80, 85, and they're laddering the income to combat future and possible and potential and probably going to happen inflation. So just put that in the back of your head. Required Minimum Distributions are going to happen. Plan on it as part of your income floor. You have Social Security, dividend income, rental income, side hustle income, RMD income, and then annuity lifetime income if you want lifetime income insurance using annuities. But think of RMDs, Required Minimum Distributions, as part of your income floor.

I know this title was, "Who cares about RMDs other than the Ultra-Rich?" Everybody with an IRA should care, and everybody reading this blog should care. When it comes to RMDs, there's no way to get out of it. The IRS is going to require Required Minimum Distributions, and they're going to require you to take that out. If you want to combat that legally, there are some ways to do that with annuities, Qualified Longevity Annuity Contracts, Single Premium Immediate Annuities, etc.

If you go to the Stan The Annuity Man® YouTube channel and look under playlist, I've done a bunch of videos on Qualified Longevity Annuity Contracts. And if you want to use a QLAC calculator, you can run your own Qualified Longevity Annuity Contract quote using our proprietary calculators. So, we're giving you all of that information. We'll quote all carriers, and you can see the contractual guarantee, and then at the end of that process, book a call with me, Stan The Annuity Man®. We will go through the good, the bad, the limitations, the benefits, and all of that to see if this makes sense for you. And we can help you with your Required Minimum Distribution planning.

Never forget to live in reality, not the dream, with annuities and contractual guarantees! You can use our calculators, get all six of my books for free, and most importantly book a call with me so we can discuss what works best for your specific situation.

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