transferring a bene. IRA
A client inherited an IRA account from his mother. The IRA is invested in a high cost variable annuity.
The account has been retitled as a beneficiary IRA (the insurance company uses the term “stretch IRA”) with the name of my client and his mother on the registration. I “think” he should be able to do a direct transfer to another beneficiary IRA account titled the same way, in order to choose a lower cost investment that is more appropriate for his situation.
His mother’s agent (the person who sold her the original annuity) says it must stay with the existing company in order to avoid being taxed. I don’t think that is right, unless there is something different with annuities versus other types of IRAs. Is it possible that this particular company could not allow this type of transfer?
Permalink Submitted by Alan - IRA critic on Tue, 2014-05-06 16:14
You are correct. Sounds like the agent does not understand IRA rules or they want to plant misinformation in order to retain the annuity. IRA tax rules trump annuity tax rules in an IRA annuity. I would intiate the transfer through the new IRA custodian if possible. Above all else, be sure there it is clear that the client does NOT want a distribution (check made out to client), since it cannot be rolled over and there is no cure for that type of error. It is OK if the insurance company makes out a check to his new IRA custodian FBO client inherited IRA (or similar) and send it to the client as that would still be a direct transfer, but would still attempt to initiate the transfer through the new custodian after setting up an inherited IRA there.
Permalink Submitted by Jason Frank on Tue, 2014-05-06 17:43
Thank you for your advice. I thought this type of transfer was allowed, but wanted to make sure I wasn’t missing something.