Spousal Payout (Indirect Rollover) from Qualified Annuity
Husband and wife are both age 60, and the wife has passed away this year.
Husband is listed as beneficiary on wife’s qualified deferred variable annuity. He does not wish to assume ownership of the annuity, and prefers to take a distribution.
Do the same 60 day provisions apply for an indirect rollover into his own non-annuity IRA, or must a separate inherited IRA be created for this transfer?
Permalink Submitted by Alan Spross on Sat, 2008-04-26 18:18
I would think a direct transfer into his own IRA would be the way to go to avoid mandatory 20% withholding. However, if he wishes to receive a check made out to him net of taxes, he has 60 days to roll it over plus will have to front the funds to keep the withholding from being taxable.
Since he is over 59.5 but still not near his RBD, there should be no reason to consider an inherited IRA.
Permalink Submitted by Matthew Clement on Sat, 2008-04-26 20:50
While correct that an inherited IRA is of no value given his age, I was under the impression that in order for him to process a trustee-to-trustee transfer to his non-annuity IRA, he would first need to set up for continuation of this annuity under his own name.
Since the annuity is within the surrender schedule for several more years, the death benefit payout is the only option which bypasses a surrender penalty, and I’m not aware that a death benefit payout can be made payable to “Custodian FBO Client.”
If I’m wrong then this is easier than expected, and thanks for your response.
Permalink Submitted by Alan Spross on Sat, 2008-04-26 21:53
You indicated that this was a qualified annuity. Under what type of qualified plan was the annuity established? If this happened to be a non qualified annuity, then the funds cannot go into an IRA of any type.
Permalink Submitted by Matthew Clement on Sun, 2008-04-27 00:01
It was originally a Traditional IRA (and 100% before-tax).
Permalink Submitted by Alan Spross on Sun, 2008-04-27 02:43
An Ira Annuity is subject to IRA portability and tax rules, therefore the death benefit can be rolled into the surviving spouse’s IRA if the insurance company will not do a direct transfer. If there are options offered by the carrier to avoid surrender charges, I would expect that they are required to clarify what they are. An inherited IRA annuity would not require RMDs until the year the deceased spouse would have reached 70.5, and in that is the case, it may be worth it to set the account up that way until the charges would cease and then roll it over to the survivor’s own IRA. If the surviving spouse wants to discontinue the annuity altogether, deduction of surrender charges could be the cost.
Permalink Submitted by Al Fry on Sun, 2008-04-27 16:31
Surrender charges are normally waived at death of IRA owner. They sometimes make it sound as if your only choice is to do spousal continuation with surrender charges intact, or to take the death benefit without surrender charges and pay the tax. They somestimes do not make it very clear that the spouse can get the death benefit transferred to the spouse’s IRA and continue the IRA without paying tax on it. I have seen some of those claim forms, and they are very vague!