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Are RMDs Your Forced Annuity

Stan Haithcock
December 22, 2022
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Today's topic is a good one. Are RMDs, Required Minimum Distributions? Let's talk about the requirement for distributions. When you turn 72, the IRS comes up to you from behind, and you don't know they're there, and they go, "Oh, by the way, you've been deferring all these taxes all these years. It would be best if you started paying us because we have to pay for our elegant social programs and all the debt we've been incurring." They don't say that, but that's what I say. So RMDs, when you turn age 72, you have to start taking money out of your IRA's qualified accounts whether you want to or not. You can't call up the IRS saying; you know what? I don't need that income, and I don't want to. You can't do that; you have to take it. You may ask, "Is that an annuity?" Yes, it falls under that qualification because you'll be getting an annual income stream from the required minimum distributions within your IRA, and that's a percentage based on your age of 72 when you start taking money out. Whether you want the income stream or not, it's coming. And when I talk about income floor, income floor is social security, dividend stocks, annuities, and pensions. Social security is the best inflation annuity on the planet, but you have to add your required minimum distributions to that income floor calculation.

Can you have an Immediate Annuity, Qualified Longevity Annuity Contract, Deferred Income, or an Income Rider for lifetime income? Can you have any type of annuity inside of an IRA? The answer is yes. And suppose you have an immediate annuity, for example, inside of an IRA, and you're getting lifetime income from that immediate annuity. In that case, that income stream from that immediate annuity satisfies the RMDs for that dollar amount in the Single Premium Immediate Annuity. Then you'd have to take a required minimum distribution and calculate the non-annuity assets. But what I want you to put in your head for all the people looking at annuities and trying to decide, do you even need one? You might not need an annuity for lifetime income.

Let's say social security and your required minimum distributions; that's an annual annuity payment when you turn 72. That's a sufficient enough income stream for your lifestyle and to live off of. You're living, burning the can at both ends. You're enjoying life. If RMD and social security cover your needs from an income standpoint, then you don't need to consider the four types of annuities that provide for lifetime income. It just doesn't make sense. Now, yes, in the future, if you need to fill in a gap, for if there's hyperinflation or inflation, you need to reverse engineer to solve for that specific amount. Yes, you can do that. Or if you say, I don't need income, I might need just a guaranteed CD type return inside of my IRA, then you might buy a Multi-Year Guarantee Annuity or an Index Annuity and put it inside your IRA. You can do that and take the required minimum distributions from those policies, and we can help you with that. Schedule a call with me, and I'll walk you through that.

Here's the other thing that you need to do; I mean, this is a pound the table. There's no gray area here. Taxing and having tax questions and RMDs are tax questions because it involves your IRA-qualified assets. Please, always use a CPA or a tax lawyer for the final answers to any tax questions. Do not take tax advice from anyone that's not a CPA or a tax lawyer. That goes for agents, advisors, masters of the universe, RIAs, and people that think they know. Unless they can put their rear end on the line when they sign off on whatever tax advice they're giving you, that's not tax advice. You might need to spend the money to see a CPA or a tax lawyer if you have specific questions, and again, RMDs fall under that category of a tax question.

Getting back to the topic, are RMDs a forced annuity? In my opinion, yes. At age 70, you have social security, and you will have to turn it on. Today, most people will wait, or they might not, but you must turn it on at age 70, which people say is the latest date. Then at age 72, you got another one. If you have IRA assets, that's another forced annuity. So, when you start putting in and calculating that income floor, that RMD is a forced annuity. That RMD is a lifetime income stream. That RMD will happen every year whether you want it to or not, similar to social security. So just put that in part of your overall income floor planning, income floor calculations, et cetera.

Let's talk about QLACs for just a second. Qualified Longevity Annuity Contracts were put on the planet in 2014 and were developed and introduced by the IRS and the Department of the Treasury. A QLAC is a future pension product you can use with traditional IRA assets.

Now, one of the good things about a QLAC is at the time of this blog; the rules are you can use up to $145,000. That's the maxima, but the rules are 25% of your IRA assets or $145,000, whichever is less. But that $145,000, if you bought a QLAC, is not part of the RMD calculations. The IRS and the Treasury Department said that yes, you could defer it and take income at 72, but you can defer it out as far as age 85. It can be far out, but that's as far as you can. But that $145,000, which you qualify for under the rules, is not part of your RMD calculation. You can lessen that RMD hit if you want to, but in my opinion, Qualified Longevity Annuity Contracts should not be purchased for the RMD part of the equation or the fact that you don't have to include that $145,000 as part of the RMD calculations. People buy Qualified Longevity Annuity Contracts, so you can use your IRA and attach your spouse for lifetime income. But if you decide to do that, $145,000, or whatever you qualify for under the rules, is not included as part of your RMD, which can lessen the tax head a little bit. Not guaranteed to do that, but it can do that and should be something that you and I discuss.

In conclusion, I encourage you to run a QLAC quote, an SPIA quote, a DIA quote, or an income rider quote. We have the best annuity calculators on the planet and can help answer any questions that you may have.

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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