Fixed Annuity Question

Submitted by Jennifer Poole on Thu, 2020-02-20 20:54

A client inherited a fixed annuity IRA from her father. She is 40 and without gathering details the rep put it in an inherited IRA. She did not realize she had started the annuitization process. She did not realize she was locked into this for life. She sent a firm letter to the home office because she didn’t realize she couldn’t transfer it to another company to get a higher return. They have offered her a commuted value calculation. They told her they would give her this money but told her she couldn’t move the money to another investment company. Is there any reason from a tax standpoint that they couldn’t do it as a transfer?



Submitted by Alan - IRA critic on Thu, 2020-02-20 23:10

  • I doubt that the annuity conditions stated it would be annuitized upon the owner’s death, and if the contract did not state that and the company did it anyway without her permission, they should be held responsible. Not sure that commutation produces the same amount as the account would have had it not been annuitized. Could she have elected annuitization without realizing it?
  • Likewise, there is no IRS rule that forbids a direct trustee transfer to another inherited IRA, so this restriction to a lump sum distribution or annuitization would also have to be stated in the annuity contract.  They might state that this requirement is not in the contract, but is their operating procedure. If they state that, their position would not likely hold up if challenged.
  • Did father pass this year under the Secure Act? 

Submitted by Jennifer Poole on Fri, 2020-02-21 20:44

No. He passed a couple of years ago.

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