Skip to Content
Personal Finance

Choate: Navigating My First RMD

Calculating required minimum distributions on Traditional IRAs, Roths, QLACs, deferred variable annuities, and SEP-IRAs is even more complicated than you might expect.

In honor of turning age 70 1/2 this year, I am calculating my first required minimum distribution (RMD). This turns out to be more complicated than I expected.

I have nine IRAs. Which ones do and do not require me to take a distribution for this year? What is the prior year-end balance I'm supposed to divide my "applicable distribution period" into? 

The Roth IRAs
My two Roth IRAs are easy: No distribution is required from any Roth IRA during the owner's lifetime, regardless of whether the owner is still working. My beneficiaries will have to take RMDs from the Roths after my death, but as the Roth IRA owner or "participant," I do not have to take a distribution from either of these accounts. As a reminder, designated Roth accounts in a qualified plan do not get this "exemption" from lifetime RMDs--a good reason to roll that money into a Roth IRA before reaching 70 1/2.

Qualified Longevity Annuity Contract
I have one more IRA that will not generate an RMD this year--the IRA that holds only a "qualified longevity annuity contract" or QLAC. Last year, I transferred $125,000 from one of my other traditional IRAs into this annuity contract, which will not pay me anything until I reach age 85. As explained in detail in my May 2015 column, the QLAC's cost and value are excluded from the value of my IRAs in computing my required minimum distributions. So that move probably saves me a couple thousand dollars of income taxes yearly for the next 15 years, and someday will provide an income boost when I may need it in later years.

My QLAC-issuing insurance company has already sent me the 2015 Form 5498 for this account, showing the Dec. 31, 2015, year-end value of the contract. The insurance company has correctly not checked the box indicating that a distribution is required for 2016.

Deferred Variable Annuities
Next come my three traditional IRAs that hold deferred variable annuity contracts. There is a separate IRA for each such contract; that's just how insurance companies do things apparently. Though these are "annuity" contracts, they have not yet been "annuitized," so regular defined contribution/individual account plan minimum distribution rules apply. The contracts are simply treated as investments of the account.

(Once an IRA balance has truly been "annuitized"--converted to a fixed payout at specified times, like my QLAC IRA--regular minimum distribution rules no longer apply. But I don't own any such true annuities other than the QLAC, so that subject will be for another column.)

The tricky part of my deferred variable annuities is, what is the year-end account value? Each contract has a "cash value" (what I would receive if I cashed out the contract right now) and a different higher value that would be the death benefit if I died or that I could apply to the purchase of a true annuity from the company. The cash value can be used for RMD computation purposes in most cases, but if the value of the minimum guarantees exceeds a certain level, then this "entire interest" value must be used.

Rather than delve into the complicated regulations, I relied on the insurance companies and my financial planner to assure me that the cash value could be used to compute my 2016 RMD. My planner suggests this special valuation rule might be aimed at super-enhanced death benefits that came with deferred annuity contracts sold in the past and probably does not affect more recently issued, toned-down contracts such as mine. 

IRA No. 7 is a SEP-IRA for my business. I will have to take an RMD from this account for 2016 even though I'm still working, because I own more than 5% of the business (see the April 2015 column for explanation of this rule). I contributed the maximum amount I was permitted to contribute for 2015--but I made the contribution in January 2016, so that post-year-end 2015 contribution is not included in the Dec. 31, 2015, balance used to compute the 2016 RMD. Just doing what I can to keep the RMDs smaller! 

The Plain-Vanilla IRAs
Finally I come to my two plain-vanilla traditional IRAs. Surely these are easy? No. My IRA provider, of course, sends me a detailed year-end statement showing the value of each account. But the statements have a little italicized section mentioning that accrued interest on the bonds in the account is "not included in the year-end value shown above." I can find no IRS guidance regarding whether accrued bond interest is included in the account's year-end value for RMD purposes.

It would be included for federal estate tax valuation purposes. But estate tax regulations have lots of special rules regarding how to value securities, including requiring the "mean" value of a security as of the date of death, a number that is hard to obtain, and as far as I can tell, is never used for RMD purposes (everybody uses closing values on the applicable date--I think). Conservatively I think I should include that accrued interest in the prior-year-end RMD, but I'm not sure all the IRA providers do it that way.

I might just get this all figured out by the end of 2016. Then I just have to decide whether to take the distribution in 2016 or postpone until April 1, 2017. And which IRA(s) to take the distributions from, since I can take the distributions from any one or more of them. And whether to take part of my RMDs in the form of qualified charitable distributions rather than cash distributions. It's going to be a busy year! 

Acknowledgments: I thank my financial planner and annuity guru Bryce Schintzius and my Nutter McClennen & Fish colleague Sara Goldman Curley for their valuable comments on this article.

Where to read more: For explanation of the minimum distribution rules for defined contribution/individual account plans, see Chapter 1 of my book Life and Death Planning for Retirement Benefits. For the print version, visit For the electronic version visit For Roth IRAs, see Chapter 5. For explanation of the different minimum distribution rules that apply to "annuitized" IRAs, see Chapters 10 and 11 of the e-book version of Life and Death Planning for Retirement Benefits (this material is not included in the print version), or see my Special Report: When Insurance Products Meet Retirement Plans, downloadable at

Now available in electronic edition! By popular demand, Natalie Choate's book Life and Death Planning for Retirement Benefits has been published in an electronic version. The e-book edition gives you the entire book in word-searchable format, plus two additional chapters (on life insurance and annuities in retirement plans) that were left out of the print edition for reasons of space. Live links to cross-referenced book sections and most cited tax sources. Access anywhere you have an internet connection. Visit to subscribe or learn more.