Annuity RMD: Who Cares Other Than the Ultra Rich

Hi there, Stan The Annuity Man, America's annuity agent, licensed in all 50 states. Today, we’re talking about annuity RMDs. Who cares about that, other than the ultra-rich, evil rich people who have huge IRAs and so on? I saw something the other day showing how many people’s 401(k)s and IRAs have gone over a million dollars. It’s a lot—a big, a "shiato" load, as they say. That’s politically correct, by the way. You can quote me on that. But today, we'll dive into RMDs and what they really mean. Required Minimum Distributions (RMDs). From here on out, we're just calling them RMDs. Let's dive in.

What Are RMDs?

Let’s talk about RMDs—Required Minimum Distributions—and you probably already know a bit about them. But if you don’t, this will serve as a good refresher course. In Southern terms, where I’m from, a Required Minimum Distribution is the IRS tapping you on the shoulder and saying, “Hey, hey, hey, hey, hey. You’ve been deferring, deferring, deferring, and deferring for all this time.” Now you’re 73, and that’s the age the IRS taps you on the shoulder and says, “It’s time to start taking money out of your qualified accounts—your IRA. We want to charge you taxes on it so you can pay taxes to the government." That’s an RMD. It’s not negotiable. You can’t just say, “Well, I don’t really need the money.”

Nope. They’re tapping you on the shoulder and saying, “Hey, based on…” You’ll receive the official notice, and you can go to http://IRS.gov to look all that up. We won’t get into all that today, but the bottom line is that the older you get, the higher the percentage of taxes they want to take because they want you to take more money out so they can charge you more taxes. That’s it. Consider RMDs as an income source when you turn 73 because you’ll have to take money out of that qualified account—whether you want to or not. That’s going to be an income source.

How Annuities Factor Into RMDs

The IRS doesn’t care where you take the RMD from. You could have multiple IRAs scattered around, and they don’t care—they just want to know the total amount and want you to take the required percentage from somewhere, whether from one IRA or another, so that they can charge you taxes.

With annuities, you can work around a few things with RMDs, but you still have to pay the man at the end of the day. Now, there’s a thing called a Qualified Longevity Annuity Contract (QLAC), which our friends at the IRS and the Treasury Department created for use in your qualified accounts—traditional IRAs, not Roth IRAs, 401(k)s, and so on. These are considered qualified accounts. However, with your traditional IRA, you can buy a QLAC for future income that starts as late as age 85. It doesn’t have to be that far out. I’ve written a book on that. Go to The Annuity Man and download my QLAC owner’s manual for free.

A QLAC is a legal way to lower your RMD amount because the money used to fund the QLAC doesn’t count toward your total IRA balance when calculating your RMD. For example, let’s say you have a $1 million IRA. At the time of this blog, the funding rules for QLACs are that you can fund up to $210,000. You could fund a QLAC with $210,000 if you have a million-dollar IRA. When determining your RMD, that $210,000 isn’t counted in your total balance, potentially lowering your taxes on RMDs because you’re using a smaller amount of money.

Does this make a QLAC a no-brainer, something you absolutely have to buy? No, it doesn’t. But it’s worth considering. You can add your spouse for joint lifetime income if you like. But the bottom line is—you have to take your RMDs.

Non-QLAC Scenario

Now, let’s look at another scenario without using a QLAC. Suppose you need immediate income with a Single Premium Immediate Annuity (SPIA) and still have a $100,000 IRA. If you decide, “I need a $100,000 immediate annuity using IRA assets,” the income stream from that immediate annuity fully satisfies the RMD requirement for that IRA asset. You don’t need a QLAC. The bottom line is that if you need lifetime income using IRA funds, you can use a QLAC to defer it or an Immediate Annuity for immediate income.

If anyone tells you, “Never buy an annuity with IRA money,” point out that the IRS and the Treasury Department actually created an annuity for use inside of an IRA.

People who say, “Never buy an annuity inside an IRA” are either stuck in a time warp, experiencing cognitive decline, or just uninformed financial journalists or advisors who don’t know any better. They’re just repeating nonsense. Of course, you can buy an annuity inside an IRA if it makes sense for you and fits your specific goals. I always ask people two questions: What do you want the money to contractually do, and when do you want those contractual guarantees to start?

If you say, “I have an IRA and might need income in the future,” then we look at a QLAC. If you say, “I need income now,” then we look at a Single Premium Immediate Annuity. Let’s talk about inflation and using these types of annuities.

Addressing Inflation with Annuities

Some people are taking their QLACs and splitting the $210,000 limit (as of this blog), having a portion start at age 75, another at age 80, and another at age 85—effectively laddering their income to combat future inflation. Just keep that in mind. Required Minimum Distributions will happen, regardless. I’ve heard rumors that the RMD age might increase past 73, but that’s hard for me to believe because the IRS and government need tax revenue. Raising the age would make no sense to me. If they do, great, but it’s age 73 for now.

Plan for it as part of your income floor. You’ll have Social Security, dividend income, rental income, side hustle income, RMD income, and possibly annuity lifetime income if you want lifetime income insurance using annuities. Think of RMDs as part of your income floor.

Conclusion

I know the title of this was “Who Cares About RMDs Other Than the Ultrarich?”—but everyone with an IRA should care. Everyone watching this video should care. When it comes to RMDs, there’s no way to avoid them. The IRS is going to require them. If you want to combat that legally, there are ways to do so with annuities, such as Qualified Longevity Annuity Contracts, Single Premium Immediate Annuities, etc.

If you want more information, go to my site at The Annuity Man. I’ve written a simple, easy-to-understand book on Qualified Longevity Annuity Contracts, and you can download it for free with no obligation. You can run your own QLAC quotes using our proprietary calculators on the website. We’ll provide quotes from all carriers, and show you the contractual guarantees, and at the end of the process, you can book a call with us to discuss the good, the bad, the limitations, and the benefits. We’ll help you with your RMD planning.

Thank you for joining me today, and I’ll see you in the next Stan The Annuity Man blog!