Inheriting an annuitized IRA
If Dad chooses to annuitize his IRA, with Son named as bene on the account, what are Son’s options when Dad dies (presumably long before his L.E.)?
My knee-jerk reaction is that Son could only take the annuitized payments for the remainder of Dad’s L.E. schedule – no ability to lump-sum out, no ability to accelerate the payments.
If I am right (which is certainly not a given), I wonder how useful this would be in terms of controlling income to a spendthrift IRA bene without having to mess with a trust.
Not saying that a trust would not be a better, more flexible solution, but if someone was set on some post-death control of a bene’s flow of income from the IRA, could a “deathbed annuitization” of the IRA create that restriction without the need for a trust?
Please and thank you.
Permalink Submitted by Alan - IRA critic on Thu, 2021-03-04 20:46
The Secure Act protected annuitized qualified plans and IRAs that had been issued by 12/20/2019, however until the IRS Secure Act Regs are published, it is not clear how annuitizing such contracts as period certain annuities today would be affected by the 10 year rule or the EDB rules. Am not sure how life insurance companies are addressing this uncertainty. There are already protections in the IRS RMD Regs for annuities and DB plans that limit the annuity period certain in relation to the age of the IRA owner so that beneficiaries would not get an extended stretch, so I assume those limitations will continue for beneficiaries that would otherwise qualify as EDBs at the time of owner’s death. For others, it could turn out that the 10 year rule would override the distribution period. Would be interesting how insurance companies are waiting out the issue of Secure Act Regs. GIven the push to allow qualified plans to offer lifetime income options (annuities), it seems like there would be pressure to get these Regs issued. I don’t know if the IRS is even taking comments on any proposals yet, but perhaps lobbyists are at work behind the lines.
It appears that for estates and non qualified trusts, death after the RBD will trigger annual RMDs based on the owner’s remaining single life expectancy, but for designated beneficiaries this option could either be continued or be pushed aside for the 10 year rule when it would not matter whether owner passed before or after the RBD.
So you have asked a good question, but I don’t think there is a clear answer.