AXA annuity in my Ira, my wife is beneficiary

Submitted by Ron Russo on Tue, 2023-01-03 20:41

I am 80 years old and in poor health. I no longer want my wife to establish a new ira annuity in her name as my beneficiary upon my death. Too complex and cumbersome for her to control,. I’ve read several articles stating that I could remove the funds out of my annuity and transfer funds into my existing MS Ira which already displays the AXA annuity as a book entry position, no tax event to be concerned about.
Herein lies my dilemna; I have been withdrawing a set dollar amount, approximately $10k annually for my RMD for 8 years. Between RMDs and the 2022 market the cash value is approximately $115k while the death benefit is currently approximately $190k and will grow approx. $6k annually by age 85. No brainer, I’ll hold annuity until I pass and my wife can then transfer the likely higher death benefit out of annuity into MS Ira as stated above.

Not so, AXA states that if my wife waits until I pass to receive the higher death benefit and then transfers out of annuity it will be considered a fully taxable distributiion, not a tax free rollover/transfer. IS THAT SO? If it is it would seem to me that my wife would likely be better off retaining the annuity, absorbing the tax hit on the likely higher death benefit value and then rolling over remaining funds to my ira which then becomes my wife’s Ira.

My apology for length of my letter, I look forward to your response.
Thank you,
Mr Ronald Russo



Submitted by Alan - IRA critic on Wed, 2023-01-04 01:02

  • MS (Morgan Stanley?)  shows the book entry because they brokered the IRA annuity purchase?  
  • Makes no sense that your wife could not have your IRA annuity directly transferred to another IRA account with no tax consequences. Suggest you clarify this through AXA again, and if they do not change their response, request an explanation and where this is stated in the contract. You might also run this by MS.
  • Your wife should attempt to assume ownership of the inherited IRA accounts and then transfer the annuity death benefit to MS directly. However if AXA does not cooperate and they issue her a check, she could still do a 60 day rollover to the MS IRA. But she is only allowed one such 60 day rollover over a 12 month period and includes her IRA if she already owns one. That one rollover should be saved for a true emergency, which is why a direct transfer is preferable. 

Submitted by Ron Russo on Wed, 2023-01-04 13:53

Thank you for your quick response, nost appreciated !If I may respond to your 3 points you shared;#1   Yes, I am a retired MS advusor and purchased the $100k annuity with cash funds in account#2 You are correct.  Ideally AXA would like my wife to inherit annuity and establish a new ira annuity account in her name as new owner for total amount of death benefit.  Doing so keeps the funds with AXA, which they want.#3   If I understand you correctly;   you believe, as do I, that she should be able to set up a new Ira ccount in her name at AXA to accept the full death benefit proceeds  (no taxes w/h ).  But instead of establishing a new annuity in her name as I mentioned above she could request a transfer of total cash funds directly to her new  Ira account she will have established at MS to receive all my other ira assets.     Am I correct in my understanding?     And if  they don’t comply and instead issue her a check, will it be for full gross amount or will they automatically withold taxes which then creates another problem in doing a rollover for full death benefit proceeds?  Sorry for all the questions, but I need to have all my ducks lined up before I challenge AXA’s process.Thank you again,M Ronald Russo   

Submitted by Alan - IRA critic on Wed, 2023-01-04 18:32

  • Any IRA owner or beneficiary can decline withholding on a distribution, but if the declination is not clear the default withholding rate for an IRA distribution is 10%. There are options for what she would do first, but submission of your death cert and her beneficiary info (SSN, address, etc) should be made to both AXA and MS to establish inherited IRAs. She could then work through MS to pull the annuity proceeds over into the MS inherited IRA by direct non reportable transfer. This avoids the withholding issue and does not use up the rollover. Once the annuity proceeds have been deposited to the MS inherited IRA, your wife should advise MS that she is electing to assume ownership of the inherited IRA. Everything would be consolidated into a single owned IRA with no tax reporting since there was no distribution made to her. But she is responsible for completing your year of death RMD in the event that you did not, but if your health is failing, to spare her this RMD concern you should complete your RMDs early in each year. 
  • If you have any IRA basis (Form 8606), your wife would inherit the remaining basis, and it would make a portion of her distributions non taxable.
  • Best wishes on your health situation.

Submitted by Ron Russo on Thu, 2023-01-05 14:18

Thank you for your patience and clarification,  I’m much more confident my wishes will be carried out.

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