Inherited Annuity Stretch Payments

Submitted by lawrence mauskapf on Wed, 2022-02-02 18:45

Have an inherited annuity, not IRA, that I have been getting stretch payments since 2018. Under the old le table age 63 was used for payments. Yesterday the 2022 payment was made under the new le table, but they used adjusted factor for a 62 year old.

Question, should I take an additional distribution to correct the company error? I have called the company and told them, but have never had much success in these types of situations. I usually am called a kook, and if the computer did it it must be right.

Question 2 I know the IRS gets form 5498 for IRA’s, but I don’t know how the IRS will know that the insurance company did not distribute enough for 2022 to qualify as a stretch payment, and what is the penalty if they don’t distribute enough, because of insurance company error.

Finally, my brother has the same inherited annuity, and they made the same error on his 2022 stretch payment.

Thanks for any help.



Submitted by Alan - IRA critic on Wed, 2022-02-02 21:25

Are the two of you the same age on the anniversary of the NQ annuity owner’s death?  The insurance company may be determining age as of that date. Were the two of your distributions under the former table the same?

Submitted by lawrence mauskapf on Thu, 2022-02-03 03:27

I was 62 in 2017(date of death) and took first stretch payment in early 2018 and was 63.  The insurance company used the old le table factor for a 63 year old of 22.7 for the 2018 payment.  They then reduced the factor by 1 for 2019, 2020 and 2021 payments.  Now for 2022 they used a factor of 21.4.  The new le table shows me the factor for a 62 year old is 25.4  which would 4 years later yield 21.4., not the new le table 63 year old factor of 24.5 which equals a 2022 factor of 20.5.My brother was 53 in 2017 and 54 in 2018 where the insurance company used the factor of 30.5 using the old le table.  They also reduced the factor by 1 for 2019 2020 and 2021.  His 2022 was just made and it reflects a factor of 29.4.  The new le table for a 53 year old is 33.4 which after 4 years would give a factor of 29.4.  However the new le table for a 54 year old is 32.5 and after 4 years to be consistant with prior payments would give a factor for 2022 of 28.5.I have a stretch brokerage IRA with all the same dates and they show for me a 2022 factor of 20.5, which is what I calculate using the new le table.  Maybe either way is OK, but I have not read the law, it just seems funny that the annuity company is not being consistent.I’m sure the insurance company will tell me what they did was correct, although it seems from everything I’ve read its not correct.  

Submitted by Alan - IRA critic on Thu, 2022-02-03 16:45

It appears that the insurance company mishandled the reset calculation to the new tables. They should have used your ages in the year of the first LE RMD, which is the year after the DOD. Instead, they used the DOD year to get your ages and that produced a divisor which is too high resulting in a distribution somewhat less than it should be. Your calculations are correct. In short, you might tell them that they need to enter the new table using your ages in 2018, not 2017.
With respest to NQ annuity distributions, the usual RMD Regs for IRAs and qualified plans do not apply. The companies have various procedures they can choose from, and the IRS does not care what they choose. However, some states have their own requirements that must be met, but they would only check them if they did an audit of the insurance company. My suggestion is to call the insurance company, ask for a supervisor and explain that they are entering the new table using beneficiary’s age in the year of death instead of the following year, which is incorrect if their intent is to follow the IRS RMD rules. Not clear if the company has a system that is not programmed correctly or if this was a manual calc error.

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