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Are RMDs Your Forced Annuity?

Stan Haithcock
July 4, 2024
Are RMDs Your Forced Annuity?

Hi, there. Stan The Annuity Man, America's annuity agent, licensed in all 50 states. Today I'm wearing the Will Do Not Might Do shirt. You own an annuity for what it will do, not what it might do. The will do are the contractual guarantees; the might do are the hypothetical, theoretical, projected, hopeful agent return scenario unicorns chasing the butterfly proposal crap that they'll show you. "If you'd have owned it 10 years ago, it would've done this." Always buy any annuity type, and yes, there are more than one annuity type that will do the contractual guarantee transfer risk that you're trying to solve.

‌Today's topic is a good one. Are RMDs (Required Minimum Distributions) a forced annuity? I mean, should Stan The Annuity Man, America's annuity agent, should I look at my RMDs as a forced annuity type of income stream? I'm going to answer that and more, now.

‌Requirement of Distributions

‌Let's talk about requirement of distributions. Now, at the time of this blog, when you turn 72, the IRS comes up to you from behind, and you don't know they're there, and they go, "Tap, tap, tap, tap, tap, tap, tap. Oh, by the way, you've been deferring all these taxes all these years. You need to start paying us, the IRS, because we have to pay for all of our really neat social programs and all of the debt that we've been incurring." They don't say that, but that's what I say.

‌So, RMDs, when you turn 72 at the time of this blog, age 72, you have to start taking money out of your IRAs qualified accounts whether you want to or not. You can't call the IRS and say, "You know what? I really don't need that income." No, you can't do that. You have to take it. The question then is, is that an annuity? In my opinion as Stan The Annuity Man, America's annuity agent license in all 50 states, yeah, it falls under that qualification because you're going to be getting an annual income stream from the Required Minimum Distributions within your IRA, and that's a percentage based upon your age when you start at age 72 taking money out. It is what it is; whether you want the income stream or not, it's coming.

‌In my opinion, when we're talking about income floor and when I talk about income floor, income floor is Social Security, dividend stocks, annuities, and pensions if you're so fortunate. Social Security is the best inflation annuity on the planet, but then I think you have to add your Required Minimum Distributions to that income floor calculation. Now, can you have an Immediate Annuity or a Qualified Longevity Annuity Contract, Deferred Income Annuity, or Income Rider for lifetime income? Can you have any type of annuity inside of an IRA? The answer is yes, and the income coming from that if you have an Immediate Annuity as an example and inside of an IRA, you're getting lifetime income. And that income stream coming from that Immediate Annuity satisfies the RMDs for that dollar amount in the Single Premium Immediate Annuity. You'd have to take 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 whether they even need one, you might not.

‌Do You Need an Annuity?

‌Let me give an example because you might not need an annuity for lifetime income. Let's say Social Security and your Required Minimum Distributions, which is an annuity type payment coming out annually when you turn 72; that's a sufficient income stream for you to live off of. Lifestyle, living good. There are no U-Hauls behind hearses. You're living burning the can at both ends. You're actually enjoying life. If that RMD and Social Security covers 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 hyperinflation or inflation, you need to reverse engineer to solve that specific amount. Yeah, 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 of your IRA.

‌You can do that and take requirement and distributions from those policies and we can help you with that. Go to The Annuity Man, schedule a call with me, and we'll walk you through that. Here's the other thing that you need to know. There's no gray area here. When it comes to taxes and having tax questions, RMDs are a tax question because it's involving your IRA-qualified assets. Please, please, please, please, please, please, please always use a CPA or a tax lawyer for the final answers to any tax questions. Are we clear? Do not take tax advice from anyone who's not a CPA or a tax lawyer. Agents, advisors, masters of the universe, RIAs, people that think they know, no, unless they can put their rear end on the line when they sign off on whatever tax advice they're giving you, then that's not tax advice.

‌See a CPA

‌You might need to spend the money to go see a CPA or a tax lawyer if you have specific questions, and RMDs fall under that category of a tax question. So, do not, and that's including Stan The Annuity Man, America's annuity agent, who forgotten more than most agents or advisors will ever know, been doing this for decades and decades and decades. I'm old. I know I don't look old. I am the first person to tell you to use a qualified tax consultant for any tax-type questions. But getting back to the topic, are RMDs a forced annuity? In my opinion, yes. So, at age 70, you have Social Security. If you're going to have to turn it on, most people are going to wait, or they might not wait, but you had to turn it on at age 70.

‌That's when people say, "Well, that's the latest date, 70." Then at age 72, you've got another one. If you have IRA assets, that's another forced annuity. 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, etc.

‌Qualified Longevity Annuity Contracts

‌Let's talk about QLACs for just a second. Qualified Longevity Annuity Contracts were put on the planet in 2014. They were actually developed and introduced by the IRS and the Department of the Treasury; in combination, they worked on that. What a QLAC is it's a future pension product that you can use with traditional IRA assets. Now, one of the good things about a QLAC is that at the time of this blog, the rules are that you can use up to $200,000. That's the maximum, but that $200k, if you bought a QLAC, is not part of the RMD calculations. The IRS and the Treasury Department said that yes, you can defer it and take income at 72, but you can defer it out as far as age 85. It doesn't have to be that far out, but that's as far out as you can go. But that $200k, let's say you qualify for that under the rules, is not part of your RMD calculations, so 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 $200k as part of the RMD calculations. Qualified Longevity Annuity Contracts, in my opinion, Stan The Annuity Man, America's annuity agent, actually wrote the first book on QLACs a long time ago, in 2014.

‌People buy Qualified Longevity Annuity Contracts because they can use their IRA and attach their spouse for lifetime income. Still, if you decide to do that, $200k or whatever you qualify for under the rules is not included as part of your RMD, which can lessen the tax hit slightly. It is not guaranteed to do that, but it can do that and should be something that you and my team discuss. I encourage you to go to The Annuity Man. You can run a QLAC quote, a SPIA quote, a DIA quote, or an Income Rider quote. You can see live MYGA feeds 24/7, 365 on all those without talking to anybody. We have the best annuity calculators on the planet, so I encourage you to visit my site. You can also download all my books for free. That's also very helpful as part of the process and part of the decision-making on your behalf, whether you need an annuity and, if so, how that process works. I'll see you on the following Stan The Annuity Man blog.

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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