non-spouse beneficiary
My client is the beneficiary of her Mother’s IRA, which is at Jackson National in a variable annuity. The mother passed away this year. Jackson National has said that if they set up the IRA-BDA, it will be a new contract and subject to surrender charges if it is subsequently transferred out to another IRA-BDA. They said they do not have a money market to place the money in, which would not be subject to a surrender charge.
Could she just take a distribution as the beneficiary and then put the money in a new IRA-BDA account, within 60 days, set up with a brokeage company and avoid taxation on the distribution?
Thank you for your help.
Permalink Submitted by Alan - IRA critic on Wed, 2013-09-25 18:37
She could NOT take a distribution and do a rollover because non spouse inherited IRAs can only be moved by direct transfer. Once a check is made out to a beneficiary individually, that amount is taxable without exception. Insurance companies and some other IRA custodians are prone to efforts to make the beneficiary a captive customer. The client may wish to set up a properly titled inherited IRA with another custodian, and then have the insurance company make out a check to the new custodian FBO (beneficiary name) inherited IRA. This qualifies as a direct transfer and probably eliminates the former custodian from setting up an inherited IRA, but client should be clear that there should be NO 1099R issued as a result of the transfer.
Permalink Submitted by [email protected] on Wed, 2013-09-25 20:08
Great. Thanks!
Permalink Submitted by [email protected] on Thu, 2013-09-26 18:31
This situation has taken a different twist in that we found out that the beneficiary was not my client (the daughter) but Morgan Stanley. How does this impact the abiltiy now to put it into an IRA-BDA and use the stretch provision?
Permalink Submitted by Alan - IRA critic on Thu, 2013-09-26 19:38
Better check to see if this is what is called a “trusteed IRA” under which the IRA agreement includes a built in trust. It is possible that Morgan Stanley is the trustee of this trust. Possibly a Morgan Stanley broker sold her mother on the IRA annuity as well, although it is not clear who is the actual IRA custodian.
Permalink Submitted by Bruce Steiner on Sun, 2013-09-29 01:57
I hope not. For why not to create a trusteed IRA, see my article on that subject in the September 2009 issue of Trusts & Estates: http://www.kkwc.com/library_cat/uf_trusteed_IRA.pdf