Transfer Qualified Variable Annuity Payout Before 70 1/2

Submitted by Donald Fusco on Thu, 2019-01-10 15:58

Can payouts from a qualified variable annuity, with a guaranteed lifetime fixed payout after annuitization, be transferred to a Tira prior to age 70 1/2?



Submitted by Alan - IRA critic on Thu, 2019-01-10 16:29

Yes, as long as the payouts have not yet been annuitized for life or over a period of more than 10 years, or are not hardship distributions or corrective distributions.  One indirect indication could be whether mandatory 20% withholding is being taken out of these payments, since mandatory withholding only applies to distributions eligible for rollover.  

Submitted by Donald Fusco on Thu, 2019-01-10 16:46

When the lifetime fixed payouts start, wouldn’t the annuitization begin at the first payout? I’m going to add to futher claify the situation; -if I start payouts at age 65, could payout be transferred to a Tira every year until reaching the year of RMD at 70 1/2?

Submitted by Alan - IRA critic on Thu, 2019-01-10 19:18

  • The key question is whether the  onset of guaranteed income is considered by the IRS to be an annuitization. Sadly, the IRS interpretation of annuitization has not kept up with the evolution of these complex contracts over the last couple decades.  The general consensus appears to be that these payouts are actually NOT considered true annuitization because of the way they are designed and are therefore eligible for rollover. Since there are no standard contracts and insurance companies keep adding riders that work together in different ways, I would put the burden of answering this question to the issuer of this contract.  Now if the company feels you have actually annuitized the contract, an additional issue is the date of your first payment has become your required beginning date for RMDs, and your payment would then not be rollover eligible for two reasons. First, it is an RMD (even well before 70.5, and second it is not an eligible rollover distribution anyway because of the duration of the payments being for life or joint life with your beneficiary. As I indicated above, 20% must be withheld ONLY if the company feels the distributions are rollover eligible.
  • I assume you are using the correct definition of “qualified”, meaning the VA is held in a 401k, 403b, DB plan, or IRA, in other words NOT a NQ annuity which can never be rolled over to an IRA.  If so, and you roll over payments that the IRS considers ineligible for rollover, you have created an excess IRA contribution that generates an annual 6% excise tax every year that the excess remains in the IRA. Since there is no statute of limitations for excess IRA contributions, if the company provides incorrect guidance and the IRS ever gets it’s act together the cost could be huge. Therefore, I recommend getting it in WRITING from the insurance company that these payments are eligible for rollover as you receive them.  Perhaps the company feels that there is no annuitization in this situation, and therefore that your RMDs do not start until the year you reach 70.5 and therefore you can roll payments over UNTIL the start of the year you reach 70.5.   Below is an article by Michael Kitces you should read. In it he mentions an IRA rollover but does not go into detail since the article targets WHEN you should turn on guaranteed payments considering the structure of the typical contract.
  • https://www.kitces.com/blog/why-it-rarely-pays-to-wait-on-taking-withdrawals-from-a-variable-annuity-glwb-rider-a-case-study/

Add new comment

Log in or register to post comments