Annuitizing an IRA annuity and rolling over the proceeds into another IRA
My client, age 61, has an old ING annuity inside an IRA with a guaranteed income benefit. The terms of the annuity are such that it makes sense to keep the contract as the IRR’s are above 9%. He has to annuitize to get the payout. Can you annuitize the contract and rollover the proceeds into a new IRA? The client also has other 401(k)’s that he will be rolling over as well and need to confirm if there are any issues with multiple rollovers from separate IRA’s and 401(k)’s?
Permalink Submitted by Alan - IRA critic on Mon, 2021-10-25 02:46
If annuitization is for life or joint life with the beneficiary, these distributions accelerate the required beginning date to the date of the first payment. So instead of the RBD being 4/1 of the year following the year of age 72, the RBD is moved up 11 years to age 61. That makes the payments RMDs, and RMDs are not eligible for rollover.
IRS guidance on related questions is lacking. One of those questions is what if the insurance company agreed to directly transfer the payment to another IRA. There has been no distribution and therefore no RMD. I have not read of any opinion on this, nor have I heard of any insurance company who will do these direct transfers. Perhaps they have received some guidance from the IRS, but it’s not public info.
Another question with no clear answer are annuitized IRAs for a short period certain, not for the owners life expectancy or joint LE as is addressed in the IRS Regs. The IRS is silent on that. It appears that the insurance companies offering these annuitizations have been very silent on this as well. They probably don’t know either.
A rollover from a 401k to an IRA is not affected by this question. Usually these are done by direct rollover to avoid withholding. Even if done by 60 day rollover, the one rollover limit does not apply unless there is an IRA account on both ends of a rollover.
However, IRA to IRA 60 day rollovers are limited to one in total over a 12 month period. There is no limit for IRA to 401k rollovers, just IRA to IRA rollovers.