No RMD taken for 8 years.
Help. Named beneficary of NQ variable annuity hasn’t touched the account since the death of his 88 year old Father in 2002. Since, he is well over the 5 year rule, to empty the account, is the IRS penalty 50% of the entire balance? Any information, please.
Permalink Submitted by Alan Spross on Tue, 2010-04-13 22:15
Strange that he has not heard from the insurer. He will probably be forced to drain the account in a lump sum now, but the excess accumulation penalty only applies to qualified retirement plans subject to RMDs under 401(b)9, not NQ annuities. Therefore, the excess accumulation penalty is not a problem.
Permalink Submitted by Duane Randolph on Wed, 2010-04-14 13:44
Thank you, Alan-Oniras for your response. The beneficiary (son and trustee) contacted the custodian regarding the variable annuity in 2002. The representive told him he could leave the money there as long as he wanted-no consequences. Recently, he inquired as to procedure for receiving the money. Long story -short, he was told there is no named beneficiary on the account. I contacted the Office of Register of Wills to get a letter of administration-now he can get his money.
I may be reading too much into your response, however, is it correct, in this case,that the beneficiary is not required to take RMD and not subject to 5 year rule? Owner died at age 88. Beneficiary is 64. IF this was an IRA, I believe he would be looking at a 50% penalty on the total amount because the account was not emptied within 5 years. Can you clarify? I’m confused.
Permalink Submitted by Alan Spross on Wed, 2010-04-14 23:22
SInce this is NOT an IRA and not a qualified retirement plan, there are no formal RMDs under Sec 401(a)9. Further, the excess accumulation penalty only applies to qualified retirement plans such as IRAs and employer plans. This is a NQ annuity that had no pre tax element for the contributions, therefore they are not subject to the same requirements as IRA accounts.
The owner was not required to start RMDs at age 70.5, although some states require annuitization or distribution of these accounts at a certain age, eg 85. For a non spouse beneficiary, many insurance companies require distributions in some fashion that is similar to RMDs, but they are not actual RMDs. Many insurers offer a life expectancy option if the beneficiary elects it by the end of the year following the owner’s death. Resolution here has probably been delayed to allow the probate process to be executed. Now that it is complete, the insurer can clarify whether all the funds need to be withdrawn or not. But there is no IRS related excess accumulation penalty.
Permalink Submitted by Duane Randolph on Thu, 2010-04-15 13:09
alan-oniras,
Thank you for your clear and concise answers- much appreciated!