Non-Spouse Stretch IRA Beneficiary
I have a client that will turn 49 in December who inherited a non-spouse Stretch IRA account from her 75 year old father. It is currently in a Variable Annuity. She needs to take income from this account. Am I able to transfer this account into a SPIA and have the client take monthly distributions without facing the 10% IRS penalty as long as the distributions are above the RMD’s that she has to take out due to the stretch?
Permalink Submitted by Alan Spross on Wed, 2008-10-29 01:32
There is no reason to take special measures to avoid the penalty, as it does not apply to an inherited IRA distribution. She just needs to be sure to take at least her RMD each year, but if she takes out more, there is no penalty, just ordinary income tax.
She can probably annuitize the VA if she wishes, but then will not have the flexibility of access to the full balance if she needs it.
Permalink Submitted by charles lore on Thu, 2008-10-30 00:34
Also the annuity rates in annuitizing a variable annuity are stacked against you. If you do an irr calculation on the annuity coming in until life expectancy
based on todays value, be it a life annuity or a period certain… the irr will be shockingly low. Especially now with stocks so beaten down your potential return would be far greater not annuitizing.
Permalink Submitted by Al Fry on Thu, 2008-10-30 02:35
Plus, based on how the annuitization is calculated, it may not be available for a non-spouse bene. And even if it is, as Chuck pointed out, the rates are usually not good. A stretch is probably a better choice, especially if any guarantees are available (they usually are, for a young bene).