Variable Annuity RMD Calculation

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A Required Minimum Distribution (RMD) is an IRS mandatory withdrawal from traditional qualified assets such as 401k, 403b and IRA plans. A variable annuity may be qualified or not, thus making the RMD contingent on the variable annuity structure you own. You can calculate your RMD, though most custodians or tax advisers will give you an accurate figure based on year-end account values.

RMD Regulations

A variable annuity is a type of deferred annuity that offers you tax-deferred savings on earnings. When the annuity is opened, you have the option to select whether it is an IRA annuity or a supplemental retirement savings account. If the annuity is in an IRA or other qualified plan, the IRS seeks to get a small percentage of taxable income drawn out of the account on an annual basis starting the year you turn 70-1/2. The first distribution must be made no later than April 1 in the year following when you turn 70-1/2. Each year after that, the RMD must be taken no later than Dec 31.

Calculation Basics

The RMD uses the year-end value of your IRA as recorded on December 31st of the prior year. The year-end value is divided by a life-expectancy factor established in one of three life-expectancy tables provided by the IRS. These tables use actuary data to determine an estimated number of payments required in your remaining lifetime or the lifetime of you and your spouse. Electing a factor based on a spouse at least 10 years younger than you reduces the RMD amount annually.

Life-Expectancy Tables

There three life-expectancy tables are found at the IRS website. The "Joint and Last Survivor Table" is used for married couples with a spouse more than 10 years younger than the IRA owner, reducing RMD payments and extending the life of the IRA so the younger spouse has an income source later in life. The "Uniform Lifetime Table" is used by single filers or those who do not have a spouse more than 10 years younger. The "Single Life Expectancy Table" is used for inherited IRAs being rolled into beneficiary IRAs so the beneficiary's age is used to determine the payments.

Beneficiary IRAs

When an IRA owner dies, a spouse may continue the IRA as if it were her own. Non-spouse beneficiaries can elect to take an IRA that is receiving RMD payments and roll it into a beneficiary IRA, taking an income stream based on their age. If the beneficiary is a minor child, say a five-year old grandchild, the five-year old's age is used to determine the factor providing an income for the child's lifetime. This helps reduce income taxes owed on the IRA and allows the grandchild to grow and access assets for many years to come.

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