Residual NQ Annuity Distribution (out of surrendar) after Partial Transfer to a New Carrier
Hello. We have a client who has a NQ fixed annuity that is out of surrendar. She transferred part of it to a new carrier for a better rate, and wants to withdraw the remainder. When our assistant called the carrier about the withdraw request status, she was told that the client will have to wait 18 mos. to withdraw the residual balance due to some IRS regulation. Do you know anything about this? Thanks.
Permalink Submitted by David Mertz on Fri, 2019-03-29 18:42
Permalink Submitted by Alan - IRA critic on Fri, 2019-03-29 18:49
IRS Rev Procedure 2011-38 reduced the prior 12 month waiting period from 1 year to 180 days. This waiting period does not restrict withdrawals from either annuity after an exchange, but it requires the basis of both annuities to be aggregated, meaning that a higher portion of the withdrawal will be taxable, the same amount as if the exchange had not been done. That does not explain where the 18 months comes from. There could be some confusion between 18 months and 180 days, or it might be possible that this company includes a restriction greater than the IRS rule. In general however, the IRS does not like exchanges done to allow the annuity owner to delay taxable income for a withdrawal simply because the gains were pro rated to each annuity, meaning that each one had a lower amount of gain that the annuity owner could exhaust and get to the investment in the contract sooner. This issue cropped up when the IRS first allowed partial exchanges. Perhaps another call to the insurer would provide clarity over where 18 months comes from – apparently not the IRS.