Insurance Company Immediate Annuity and Inherited IRA
The owner of an insurance company [i]deferred[/i] annuity died in 2000 [i]over[/i] age 70 1/2, while taking RMDs. The deferred annuity was retitled in his surviving wife’s name. She was [i]under [/i] age 70 1/2 and continued taking RMDs based on her deceased husband’s date of birth. The widow wants to do a direct rollover, i.e. a trustee to trustee transfer to an [i]immediate[/i] annuity with the same insurance company. She will be the annuitant and the owner, with the owner’s title continuing to reflect the fact that she is the surviving spouse of the decedent, with the decedent’s name. The insurance company says that the RMDs under the [i]immediate[/i] annuity will be based on the widow’s age, which is [i]nearly 20 years younger[/i] than that of the decedent spouse. The 2007 RMD has not been taken yet. Three questions:
1. Must the 2007 RMD be taken from the existing deferred annuity [i]prior[/i] to the internal trustee to trustee transfer from the deferred annuity to the immediate annuity?
2. Is the insurance company correct in its position that under the new immediate annuity the widow’s much younger age will be used in calculating RMDs (she will turn 70 1/2 i 2009)?
3. If the 2007 RMD must be taken from the existing deferred annuity [i]prior[/i] to the internal trustee to trustee transfer from the deferred annuity to the immediate annuity, then should it be based on the decedent spouse’s age or the surviving spouse’s age?
3. If the the 2007 RMD must be taken prior to the transfer to the immediate annuity, then is it calculated using the age of the decedent, as it has been calculated since his death, or is it calculated using the widow’s age (still under 70 1/2)?
Permalink Submitted by Alan Spross on Wed, 2007-08-15 22:36
This is evidently an IRA annuity, and the surviving spouse retained her interest in beneficiary form rather than assuming ownership until now. This was really not necessary since she was over 59.5 when her husband passed. By assuming ownership in 2001, she could have avoided RMDs, and still could have taken what she needed without penalty, subject to the annuity withdrawal limits.
1) No. If she assumes ownership this year under age 70.5, there will be no 2007 RMD requirement because she is deemed the owner as of the beginning of 2007. If she does not take the beneficiary RMD this year, she will also be deemed to have assumed ownership by default.
2) Yes. By assuming ownership and starting an irrevocable immediate life annuity, that payout will be based on her age and will supercede her RMD requirement that would have begun in 2009. Annuitization usually results in a more even distribution, ie more in the early years and less in the later years. Regular RMDs start out lower and then the factor rises each year. The investment risk in the immediate annuity is assumed by the insurance company rather than the IRA holder.
3) N/A