Annuities are retirement investment vehicles that are sold by insurance companies, according to financial consultants at Fidelity. They can help people save for retirement and can offer a guaranteed income stream during the retirement years. There are two basic kinds of annuities, tax-deferred annuities and income annuities. Distribution rules vary depending on the annuity.
Initial Distributions
Distribution generally must begin by April in the year following when the annuity holder turns 70 and a half or in the year the account holder retires from the employer who funded the annuity. Account holders must start receiving the interest earned on the annuity at the required distribution age or begin receiving regular funds annually over the life of the account holder. Periodically, the Internal Revenue Service rules vary, allowing annuity holders to postpone distributions. For example, in 2009 no required minimum distribution was necessary from employer-funded annuities.
Beneficiary Distributions
Following the death of the account holder, disbursements must continue at the same rate as they were before the account holder's death. Beneficiaries must receive the same disbursements for up to five years. After five years, the account must be completely paid out. Again, IRS rules allowed beneficiaries to skip payments in 2009, providing a six-year payout. If no distributions were made before the death of the account holder, distributions must be made to the beneficiaries over their lifetimes. The disbursements must begin after the year the policyholder would have turned 70 and a half.
Variations
Distributions can be made in a variety of forms as long as the total disbursement for the year totals the required amount. Payments can be made on a monthly or quarterly basis or provided in one lump sump yearly. Distributions can be higher than the minimum amount, but the funds do not count toward the minimum disbursement requirements in the following year, except for the first year when excess funds can count toward year two disbursements. Special distributions also have been allowed following certain natural disasters such as certain hurricanes and flooding events approved by the IRS.
Combinations
Disbursements from annuities must be made separately from each account. The disbursements from multiple accounts cannot be combined to meet minimum requirements. Each account is considered separately. Tax-sheltered investments can however be combined to meet minimum disbursement requirements. The total can result from combining all the tax-sheltered annuities held by the policy owner.
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