Can I pay my RMD with money outside of my retirement account?
I own a variable annuity fund that I am converting to monthly payments. It almost reached maturity (i.e. 2/1/2017) and I am taking advantage of an offer by the annuity institution a little early. I am turning 71 years old in July and was informed I need to withdraw money from my account this tax year when I turn 70 1/2. I have money to pay the RMD in my bank account. Can I pay the RMD with money independent of the annuity account? Or, do I have to withdraw money from the annuity account?
That depends on how many qualified accounts, such as IRAs, 401(k)s, 403(b)s or similar you have. Technically, if you have multiple IRAs you can take a distribution from one (as long as it meets the aggregate amount). However, if you have an IRA and a 401(k), you will have to take two different distributions. This is the most common reason why financial advisors often will recommend rolling over different 401(k)s into one IRA.
If your annuity is not a retirement account (e.g. non-qualfied annuity), you will not be able to take a distribution and count it as your Required Minimum Distribution (RMD).
On a side note, if you are married and your wife has an IRA, you cannot take a distribution from hers and have it count as yours.
Keep in mind if you don't take your RMD (or forget), there will be a 50% penalty (e.g. $1,200 penalty on a missed $2,400 RMD).
If you have any further questions, I'd be happy to help.
Sorry, but Required Minimum Distributions (RMDs) are just that...required. They must be made from the qualified (annuity in this case) account. You are required to withdraw the minimum in the tax year you reach age 70 1/2. This means, in your case, 2016 because you turned 70 1/2 in January. There is a special provision in the rule for the first distribution which you may defer into the first quarter of the next tax year. So, you could make both your first and second RMD in 2017. The distribution must come from the qualified account. You will owe ordinary income tax on the annual distributions for the remainder of your lifetime. You may not substitute a withdrawal from somewhere else because the tax treatment on your bank account isn't the same as it is for your qualified annuity.
The RMD is a distribution from the plan, and that's where the money has to come from. You can't "pay" the RMD from a different account, like a bank account. The insurance company is required to distribute RMDs beginning at age 70.5, as long as the annuity was tax deferred. Of course, if the annuity was not a tax deferred account, then no RMDs will be required. If the insurance company told you that RMDs are required, then it's a tax deferred account.
While you can pay your RMD with funds from your bank account, you will still have to withdraw the money from from your qualified annuity pursuant to IRS rules. Here is a link to the IRS rules governing RMD: