annuities stretching
Can a variable annuity be stretched just like an IRA, or is there a five year limit? What provision of the IRC is relevant?
Can a variable annuity be stretched just like an IRA, or is there a five year limit? What provision of the IRC is relevant?
Permalink Submitted by Alan Spross on Mon, 2009-07-06 02:48
If an annuity is within an IRA, then IRA tax and RMD rules apply.
However, a non qualified annuity is not subject to RMDs under Sec 401(a)9 as are qualified plans. My understanding is that states have various rules determining at what age some form of distribution must begin, but probably none prior to the mid 80s. However, after the NQ annuity owner passes, some companies will allow an IRA like stretch or require a 5 year payout. This decision is not based on any IRS rules.
Al Fry can might have further comments if he sees this, as he works directly with annuities.
Permalink Submitted by Al Fry on Mon, 2009-07-06 17:36
Many carriers allow NQ stretch for a non-spouse bene. Some that do not will allow a 1035 exchange of the DB to a company that will allow a stretch. Lincoln is a company that does take 1035s of DBs and allow a stretch, or at least they did when I worked there (until earlier this year). Of course the current carrier must report it as a 1035, or it will not work. Some will allow the 1035 if a hold-harmless is provided.
Permalink Submitted by Joseph Arsenault on Mon, 2009-07-06 17:38
My understanding..
Sec 72(s)(1)(B) – If the contract holder dies before the annuity starting date, the entire interest in the contract must be distributed within five years after death.
However, some custodians allow for either the lump sum to be paid out in 5 years or the non-spouse beneficiary can select to stretch the payments over their life expectancy based on the policy’s stretch payout guidelines (must be elected within a one year time frame).
A contract is deemed to satisfy the required distribution rules if the contract specifies that annuity payments will be made to or for the benefit of the designated beneficiary for their lifetime or over a period not extending beyond the life expectancy, as long as they begin within one year of the contract holder’s death. Sec. 72(s)(3), 72(s)(4)
Maybe Al Fry can add more..
-J
Permalink Submitted by Al Fry on Mon, 2009-07-06 18:37
Correct. NQ stretches have been allowed by several PLRs. Why some carriers still do not allow is beyond me. Of course some custodians took years to allow IRA stretches. It woud seem they would want to hang on to the money as long as possible.