IRA Annuity Question
Hello, I was wondering if you could take a look at the following situation and provide any feedback on what can be down at this point:
An 82 year old died in 2019 (before SECURE Act) and had an IRA annuity. His four sons were the beneficiaries. Three of the sons established their own inherited IRAs immediately. The fourth son has still not separated his portion into his own account. See my questions below:
1. What are the implications now that the fourth son didn’t move the funds into his own inherited IRA by 12/31 of the year after death? Would his RMDs need now be calculated based on the age of the oldest of the four benes because his portion wasn’t moved by the 12/31 deadline?
2. The annuity company is saying that because assets were not moved into his name by 12/31 of the year after death that RMDs are no longer an option and only a full lump sum distribution is allowed. Is this correct? I have never heard of this.
3. Is it possible this lump sump requirement is a policy specific to the annuity company?
Thank you.
Permalink Submitted by Alan - IRA critic on Thu, 2021-04-08 21:06
While IRS Regs are not totally clear, if you have 4 beneficiaries and 3 have transferred their separate shares to inherited IRAs, the procrastinating beneficiary also has a separate account because all the other interests have been transferred out. In other words, when the 3rd beneficiary established a separate account, that means that the only remaining account is as separate as it can possibly be. If I was one of the other beneficiaries I would take RMDs using my own life expectancy.
Have never heard of such a provision being used, although the insurance company can be more restrictive than the IRS rule. Once they issue a check payable to a beneficiary, it cannot be rolled over, although a beneficiary could try to get their balance directly transferred to another custodian, preferably not an insurance company. Inherited annuity IRAs often levy anti consumer and arbitrary rules for non spouse beneficiaries, but this particular ruling seems like it was fabricated for this situation. Does the IRA agreement beneficiary clause state this in writing?
First time I have heard of a company using this rule not just to restrict life expectancies, but also triggering an LSD unless they did not provide a stretch in the first place.
In practice with non insurance inherited IRAs, a beneficiary establishes their inherited IRA separate account and takes LE RMDs without investigating every other beneficiary to determine if every one of them established separate accounts or not. Normally, an IRA custodian will not force out RMDs because IRA RMDs can be aggregated with other inherited accounts from the same decedent. How does this particular company know whether the decedent had other IRA annuities with other insurors and satisfied their RMD from the other accounts?
If an IRA owner cares about tax implications for their beneficiaries, they should check into not only the beneficiary clause provisions, but whether the company uses other non specified company operating guidelines to reduce or eliminate the RMD distribution period for their beneficiaries.