client excercises annuity free look period on IRA
I have a client that was high pressure sold an annuity a couple months ago. Once the agent delivered the contract, and the client had time to review it, they decided to file a compliant against the agent with the state and the annuity company. They have decided to free look the annuity and send the IRA back to the original custodian and have contacted me to help them. Here’s my question…the IRA left the original custodian on 4-8-16 and was placed in the IRA annuity on 4-12-16 where it still resides. If they free look the IRA and it goes back into the original account, then it will have occurred around 65-70 days after 4-8-16. Will this be a taxable event, or is it considered to have been invested during the time it was with the annuity company?
Thanks for your help!
Permalink Submitted by Alan - IRA critic on Wed, 2016-06-08 00:41
Movement of funds between IRA accounts should be done by direct trustee transfer, not by 60 day rollover. That avoids the one rollover limit. If the funds were moved to the IRA annuity by 60 day rollover, the only way to move them back is by direct transfer since another rollover cannot be done for 12 months from 4/8. Even if there was no earlier distribution, it is always best to avoid using up the one rollover per 12 months that is permitted to preserve that for an emergency situation. The answer then depends on how the money was moved into the annuity, and if it was done by non reportable transfer, and there are no other 60 day rollovers done in the last 12 months, it could go back to the original IRA by either a 60 day rollover or a direct transfer. The insurance company has had the funds for 2 months now and even if the annuity is rescinded, the company should not be taking the position that they never accepted the funds.