Annuity owned in Profit Sharing Plan

Submitted by Jennifer Butler on Fri, 2023-05-05 18:44

I’m trying to figure out if the death benefit from a Variable Annuity owned by a Profit Sharing Plan, with the Profit Sharing Plan as a beneficiary, will be subject to the 5 year or 10 year rule for distribution.

The annuity was for the mother who died prior to her RBD age, and the death benefit is paid to the plan, who will then transfer the proceeds to an inherited IRA for the benefit of her son.

If he leaves it at the carrier, he can do a 5 year distribution, or he can do a lump sum. Just trying to figure out the legal requirements here.



Submitted by Alan - IRA critic on Fri, 2023-05-05 20:42

If the annuity death benefit can be paid to the PS plan and a direct rollover from the PSP to an inherited IRA can be completed by the end of the year following the year of death, the son would be subject to the 10 year rule with no annual RMDs in years 1-9.  

Submitted by Jennifer Butler on Fri, 2023-05-05 22:09

The carrier is paying the death benefit to the PS plan, but is requiring mandatory withholding of 20% federal, which makes a rollover more complicated, since the plan would then need to come up with $300K plus to replace the amount was withheld. Does the 60 day rule apply here, or could they replace the funds after the tax return is filed in early 2024 (death was early 2023)? Thanks for your help

Submitted by Alan - IRA critic on Sat, 2023-05-06 15:51

If there is withholding, that means that the annuity distribution is a taxable distribution. It’s not clear whether this is an error or a requirement. The plan administrator should be asked to clarify what rules should apply here. The insurance company could be treating this as an individual owned annuity rather than a DC plan annuity. If the beneficiary receives a distribution of any kind through the plan, as a non spouse beneficiary there is no 60 day rollover allowed.

Add new comment

Log in or register to post comments