annuity IRA death benefit
Have a client who passed away with two annuities: one non-qualified, one qualified (all pre-tax source). Annuity company botched the proceeds and did not rollover into an IRA (on the qualified) for his wife (who is listed as beneficiary). Instead, they paid out the death benefits of both annuity contracts. We’re okay with the non-qualified being paid-out. That was the intent and instruction.
Agent has suggested that client re-deposit proceeds into an IRA for beneficiary. It is my understanding that even if this works, beneficiary would need to deposit the amount of the death benefit and pay the Treasury or IRS an amount of tax (that was never withheld because it was supposed to rollover to the spouse).
Two questions:
Can the beneficiary put the death benefit into a spousal IRA? Is that legal? It appears that it would not be.
Can/should the annuity company rescind the death claim and re-process as the way it should have been-the client’s intent-to have a spousal IRA opened and then pay the dealth benefit of the annuity into this spousal IRA?
Permalink Submitted by Anonymous (not verified) on Thu, 2009-02-19 17:48
There should be no problem if the surviving spouse simply rolls the qualified distribution into her own IRA within 60 days. If the surviving spouse is under 59.5 and wants an inherited IRA to avoid early distribution penalties, it might be more difficult getting a custodian to allow it since that depends on a private letter ruling (2004-50057).
I wouldn’t worry about the withholding as that was the plan’s responsibility and the survivor should not need to front the withholding when they have done a full rollover with respect to the qualified distribution.