NQ Inherited annuity

Submitted by Stephen Hodson on Mon, 2017-02-20 15:37

This is a little off the IRA track. Female age 55. She and her brother are named beneficiaries. He took a lump sum. She wants to defer and do an inherited NQ annuity. Her mother passed away 2/29/2016. The balance is 77,000 – 11,500 is basis. The 12/31/2016 balance was very close to 77,000, but I can get the exact # from the carrier. I’m trying to calculate her RMD. Do I use current balance or 12/31/2016? Do I include basis? Single Life expectancy table?



Submitted by Alan - IRA critic on Mon, 2017-02-20 17:34

Use the single life table and the full 12/31/2016 value if her brother’s share was distributed before that. Unless the annuity is very old, the basis will be distributed last after several years of fully taxable distributions.

Submitted by Stephen Hodson on Tue, 2017-02-21 15:41

Actually, it’s very old.  The pre-tefra contributions were 9400 and post-tefra 2100.  Does that mean I use single life table and first 9400 that comes out id basis?

Submitted by Stephen Hodson on Tue, 2017-02-21 15:45

If the brother did not take his distribution until last month, would I just divide the 12/31/16 balance by 2?

Submitted by Alan - IRA critic on Tue, 2017-02-21 17:36

  • Yes, the basis of 9400 pre Tefra comes out first, then all the gains of pre and post, and the post Tefra basis comes out last. Since the brother’s total distribution was done this year, the 12/31 balance would be divided by 2 for sister. Her share should contain 50% of the Tefra based breakdown for determining taxes on her distributions. Single life table applies based on her age at the end of 2017. The 1099R will report the taxable amount, but once she receives 4700, her distributions will be 100% taxable until all of her share of the gain has been distributed.
  • She must take her first stretch payment by 2/29/2017, but since that date does not exist the deadline is either 2/28 or 3/1, not sure which. Easier to just consider the deadline as 2/28. Single life table divisor is based on her age on that date (not 12/31 as is the case for IRAs). Then reduce divisor by 1.0 for each year thereafter.

Submitted by Stephen Hodson on Thu, 2017-02-23 22:27

The IRA and qualified planSubmitted by Alan-iracritic@… on Mon, 2013-12-16 13:57The IRA and qualified plan RMD rules do not apply to NQ annuities. Insurance company rules reflecting state rules where necessary determine the options. In this case it sounds like the insurer is offering a stretch which under IRA rules would not require the first RMD until 12/31/2014. However, the insurer might have opted to move that date up to the first anniversary of the DOD and that would be OK with the IRS.This answer was given to a similar situation a few yerars ago, which seems to conflict with the answer I received.  Have the rules changed since this answer?

Submitted by Stephen Hodson on Thu, 2017-02-23 22:30

This answer was given to a similar situation a few yerars ago, which seems to conflict with the answer I received.  Have the rules changed since this answer?

Submitted by Alan - IRA critic on Thu, 2017-02-23 23:27

No rules changes. NQs annuities are not subject to qualified plan RMD rules, but company/state requirements have resulted in adoption of many of the qualified plan RMD rules anyway. One variation noted earlier was the use of the actual DOD anniversary date for the start of stretch distributions instead of the end of that year. I think that is the norm, but not sure if some plans may adopt the end of the year deadline. Ask the specific custodian what the requirements are.  Another variation is that for trust beneficiaries the qualified trust rules for qualified plan RMDs do not apply to NQ plans.

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