403(b) tax sheltered annuity with the Estate as Beneficiary
Hi. My mother recently passed away leaving a 403(b) tax-sheltered variable annuity to her estate. She was under 70 and hadn’t begun taking distributions. I am the sole executor and beneficiary of the estate. I’m open to suggestions as to my distribution / transfer-out options. Neither Metlife nor my CPA have been of much help in this area.
Metlife wants me to do either a lump sum now or a deferred lump sum in 5 yrs. Re-titling the account (or re-assignment of beneficiaries) is a no-go, and Metlife insists that they may only pay out to the estate (despite language in the contract that suggests otherwise) . Is it legal / possible to transfer the assets to a traditional IRA titled in the name of the estate (at a another company), and then take distributions from this estate account to myself over 5 yrs? Would the estate need to remain open over the 5 yrs? Thank you.
Permalink Submitted by Alan - IRA critic on Sat, 2017-07-15 16:38
Sorry to hear of your loss. Unfortunately, leaving a retirement plan to an estate was a bad decision. Only a designated beneficiary or qualified trust beneficiary can do a direct rollover to an inherited IRA per IRS Regulations and Notice 2007-7 Q 11. Therefore, you are stuck with the Metlife limited options. If the plan had permitted distributions of 20% per year for 5 years that would have helped with the tax bills, but unless you are expecting a real low income year in 5 years, you might as well just take the lump sum now and close the estate, or if possible push it off till January if 2018 will be a lower tax year. That is possible if Congress reduces tax rates or if you will have less income or more deductions in 2018. Perhaps you can use the proceeds to subsidize contributions to your own retirement plan such as a 401k. If you are not maxed out the additional contributions will offset the taxable income from the lump sum distribution to some extent. When Metlife pays out the lump sum to the estate, you will have to file a 1041 and K 1 to pass through the income to yourself as the estate beneficiary.