Determining the Required Minimum Distribution on an IRA is a Complicated Matter Howard Hook CFP®, CPA, quoted in The Star-Ledger's business column, "Biz Brain" on December 23, 2012 Question: My $1 million IRA has 50 percent in mutual funds and 50 percent in an annuity. Can I compute the total Required Minimum Distribution (RMD) for the IRA using the applicable divisor for age 82 of 17.1, making the total RMD $58,480 for 2012? That would mean I could apply whatever the annuitized amount (which is higher than the 17.1 computation) toward the $58,480? Or do I have to take the mutual fund IRA of $500,000 and use $29,240 for my 2012 IRA RMD, and add whatever my annuitized amount is calculated to satisfy my total RMD? Answer: Unfortunately, the distribution from the annuity cannot be used to satisfy the RMD for the non-annuity IRA. “The RMD from the annuitized IRA is whatever the payments are to you,” said Howard Hook, a certified financial planner and certified public accountant with EKS Associates in Princeton. “The RMD for the non-annuity IRA needs to be calculated and withdrawn separately.” This is complicated business, and you want to make sure you do it right. If you're not sure, check with your tax preparer or a financial planner. IRS Publication 590 covers IRAs but it doesn't provide a lot of guidance on annuities, said Diahann Lassus, a certified financial planner and certified public accountant with Lassus Wherley in New Providence. “It does give you the basic requirements that an annuity must meet in order to be purchased as an IRA annuity,” she said. “According to the IRS, an individual retirement annuity must be issued in your name as the owner, and either you or your beneficiaries who survive you are the only ones who can receive the benefits or payments.” Once you annuitize an annuity within an IRA, the annuity payment literally becomes your RMD for the dollars you chose to annuitize, she said. Because, by definition, the withdrawals continue and are irrevocable, the IRS is pretty much guaranteed to receive the taxes that are due on the tax-deferred dollars, Lassus said. If the IRA is fully annuitized, it should satisfy the RMD. “The IRS basically accepts the calculations of the insurance company or issuer as being accurate,” Lassus said. “In reality, annuitizing could possibly mean that your distributions and the taxes you pay on those distributions might be higher in the early years versus using the IRS tables to calculate your RMD.” Lassus said if only part of the value of the IRA is annuitized, you will need to calculate and take a separate RMD for the amount not annuitized based on the applicable divisor. “The bottom line is you must treat the annuitized IRA and the IRA invested in mutual funds as separate,” she said. “The challenge with an annuity is that you don't receive a statement of value after the first year.” In the first year, you may be able to use part of the annuity payment as your RMD for your other IRA since you can calculate the year-end value for the prior year end. This allows you to do a standard calculation of RMD for that year, Lassus said. “After the first year you are not able to receive a statement of value for the annuitized portion of the IRA at year end, which means there is no straight forward way to calculate the RMD under the standard rules,” Lassus said.