Inherited IRA Question with FIA’s
I have some questions regarding a current client situation.
Here are the facts of the situation and my questions:
I have a client, age 66, who passed away about a week ago, and he has two Fixed-Index annuities (Qualified). His spouse, age 49, is his Primary (100%) Beneficiary. Both of the annuities are still within the surrender charge period, however, the death benefit (account value) is available without surrender charge.
My original thinking (advice) was to just change the existing annuities to Inherited IRA’s for the spouse-beneficiary, however, the insurance companies are advising that they (we) are not able to have these changed to Inherited IRA annuities.
So as I was thinking about this (struggling with a solution), I started to wonder if we should just advise the client to take the surrender charge free death benefit from both of these annuities, and then put them into a New Inherited IRA for the spouse. If we were to do that, how should the payouts from the annuities be made?
Is there a requirement to do a direct transfer, is there a 60-day Rule, can the client co-mingle the funds from both qualified annuities and put them into one (New) Inherited IRA that we would set-up for her?
Thanks.
Permalink Submitted by Alan - IRA critic on Thu, 2021-06-03 21:48
You said the annuities were qualified. Are they non annuitized IRA annuities?
Permalink Submitted by Russ Grzywinski on Fri, 2021-06-04 00:43
They are qualified, fixed-indexed annuities that are not annuitized, but still in the growth mode. Had the client survived to retirement, we would have used them to create a lifetime income stream.
Permalink Submitted by Alan - IRA critic on Fri, 2021-06-04 04:48
Perhaps they are just indicating that these inherited IRAs cannot be annuitized, which I think is typical. But the surviving spouse should be able to continue with the inherited IRA annuties, and will probably pay surrender fees if she does not. If moving the inherited IRA annuities to another custodian she needs to be sure to use a direct transfer, better initiated by the receiving custodian.
Permalink Submitted by Russ Grzywinski on Fri, 2021-06-04 13:29
She can take the death benefit (account value) without surrender charges, so this may be an opportunity to take the death benefit(s), and combine them into a new inherited IRA that may be more appropriate for her.Also, if the insurance company won’t allow them to be re-titled as inherited IRA’s, and just puts them in her name, as Her IRA, then my client loses the advantages of keeping them as inherited IRA’s, and that is what I’m trying to avoid.
Permalink Submitted by Alan - IRA critic on Fri, 2021-06-04 16:38
First, I would carefully read the beneficiary clause in these IRA annuities. Obviously, the spousal rollover would expose her to pre 59.5 early withdrawal penalties, so an inherited IRA is in order, either continuing the annuity or doing a direct transfer to another inherited IRA at another custodian. Such a transfer is best handled through the receiving custodian. It is not allowed to do a 60 day rollover (even for a spouse) to an inherited IRA, only to her own IRA which is not acceptable here. Therefore direct transfer must be used to move the funds. Also, this insurance company should have dedicated staff to explain to beneficiaries how this is most efficiently accomplished. Spouse should resist any actual distribution, since that would limit her options to the spousal rollover to her own IRA. Taxpayers keep purchasing IRA annuities with no idea of what hassle they will present for their beneficiaries.