Inherited IRA and Life Annuity Payout

Submitted by Mark Wilson on Wed, 2023-08-09 22:05

My client does not want to hand over a big sum to their daughter after her death. The client wants to have her trust direct the trustee to sell everything and purchase a life annuity for the benefit of the daughter. Home sold, brokerage account sold, life annuity for the daughter purchased. Given the 10-year payout rule, is this possible with her large IRA?



Submitted by Alan - IRA critic on Wed, 2023-08-09 23:25

  • The 10 year rule cannot be avoided, even with an annuity. It might also be very difficult to find an insurance company to annuitize an inherited IRA. If client’s IRA is left to a trust qualified for look through, the trust might be drafted to allow accumulation of the IRA distributions done in the first 10 years, but distributed out of the trust according to some schedule or even trustee discretion. The downside of accumulating income in the trust will be the higher trust tax rates on the IRA income.
  • If daughter is disabled or chronically ill, please advise. If so, the 10 year rule can be avoided in various ways.
  • Much of this depends on whether client has no problem with the daughter receiving annual distributions over 10 years, eg from an annuity, or if that access is unacceptable and should be limited for over 10 years or by amount.

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