Inheriting an IRA SPIA versus the 10-year rule?
Thank you in advance. My client, age 70 expects to die of cancer within the year. He wants to purchase a SPIA with his $250,000 IRA now, while alive. His beneficiary will be his spendthrift daughter about age 45. Can we buy a 20-year certain IRA today and also avoid the 10-year rule’s time requirement? Paul McGillivray
Permalink Submitted by Alan - IRA critic on Tue, 2024-06-11 17:03
The 10 year rule will apply to the inherited IRA annuity after client passes. To have avoided the 10 year rule and to qualify for the exception to the Secure Act, the IRA annuity would have had to begin annuity payments prior to 12/19/2019.
Permalink Submitted by Paul McGillivray on Tue, 2024-06-11 17:57
Thank you, Alan. How does this work then. The IRA owner purchases this SPIA before he dies. There is no inherited IRA in play yet. How can this otherwise valid annuity contract be required to shorten the payout terms or perhaps the client is subjected to the income taxes on the residual value of the remaining payments? Would it matter if the existing annuity was annuitized? Paul McG
Permalink Submitted by Alan - IRA critic on Tue, 2024-06-11 19:17
The annual payments would continue to the beneficiary for an inherited IRA annuity for years 1-9 of the 10 year rule, but the remaining balance would have to be distributed in year 10. This would apply to any annuity started after 2019 whether existing or newly created. The Secure Act provisions do not allow annuitization of an account as a work around for the 10 year rule, but not sure if insurance companies are all aware of this yet.
However, if the daughter was disabled or chronically ill and therefore an EDB, the 10 year rule would not apply.
Permalink Submitted by Paul McGillivray on Wed, 2024-06-12 15:04
Thank you again, Alan. I am sure you are right. AND some companies have no idea about this yet. Thanks too for the reminder about the other EDB qualifications. Have a great day. Paul McG