Rollover of IRA annuity with estate as beneficiary
My father passed away at age 69 holding an IRA variable annuity at Jackson National, and his estate was the beneficiary. He passed away before RMDs, before the income date, and without annuitizing anything. His wife, his daughter, and I will split the proceeds as beneficiaries of the estate. Jackson is offering either a lump sum distribution to the estate or a distribution over 5 years to the estate. The IRA is big enough that we need to spread it over 5 years to minimize income taxes.
I’m unhappy because: Jackson cannot split the IRA into per-heir inherited IRAs, making estate administration long and difficult. Also, Jackson’s expense ratios are very high, so keeping the IRA at Jackson as we spread the withdrawals over 5 years is very expensive.
At this point, I just want to do a trustee-to-trustee rollover of the IRA to Vanguard, which allows splitting the IRA and also offers much lower costs for the next 5 years. But Jackson won’t allow this rollover. I am very frustrated and find it difficult to accept that this IRA is seemingly stuck at Jackson.
Is there a legitimate basis for Jackson to refuse a trustee-to-trustee rollover? Do we have any grounds to insist that Jackson allow the rollover?
Permalink Submitted by Alan - IRA critic on Fri, 2021-12-24 22:47
Unfortunately, this is the policy of many life insurors for non spouse inherited IRA annuities. If IRA owners ever investigated the effect of their beneficiary selection and post death options for those beneficiaries, many would not retain or purchase these annuities in the first place. Most often, these annuities are sold to IRA owners without disclosing any of this.
There are so many hurdles here. Father passed prior to RBD with his estate as beneficiary, triggering the 5 year rule. I assume you are the estate executor (?) but Jackson will not accept assignment of the IRA annuity out of the estate to the estate beneficiaries, regardless of the executor. And they will not honor a direct transfer request from another IRA custodian, with which the assignment could be executed. Finally, multi estate beneficiaries, one a spouse, with different preferences, also presents complications for the executor.
I have heard of cases where a transfer request received directly from the receiving custodian is sometimes honored, but that is something you might talk to Vanguard about to see if they have had any success with such requests, and if so you could open an estate inherited IRA at VG after which VG would accept assignment out of the estate to the 3 estate beneficiaries. Odds may not be good that this would work or that VG would cooperate either.
This is actually even worse for the spouse, since if the spouse was the sole beneficiary of the estate, she could have had the IRA assigned out of the estate to herself, and several IRA PLRs have authorized this (spousal rollover). But if instead she receives a distribution in year 5, it will be an RMD and not eligible for rollover.
In short, with several hurdles to overcome, you would have to decide if the effort is worth it. Even non life companies are not attracted to estate inherited IRAs because they are wasting assets, and possibly litigation prone. So no easy answers.
Permalink Submitted by Daniel Peng on Tue, 2021-12-28 13:46
Thank you! In a positive development, Jackson has changed their mind and is allowing the transfer, and Vanguard is happy to accept it. I’m still crossing my fingers, but so far at least everything looks promising!
Permalink Submitted by Alan - IRA critic on Tue, 2021-12-28 16:36
Good news, but do you think they changed their mind because you were pressing them? Or perhaps their initial statements were made by untrained staff?