After Death, Don’t Leave Your Loved Ones This Headache

This week’s Slott Report Mailbag looks into beneficiaries, inherited IRAs, RMDs and annuities. As always, we recommend you work with a competent, educated financial advisor to keep your retirement nest egg safe and secure. You can find one in your area here.

Question:

A spouse inherits a Savings and Investment Plan from her husband at his death. She fails to name her beneficiaries, and has been taking RMDs until her own death this past October. The employer distributes accounts to her estate (in process) because no beneficiaries were on file. Can her only heirs, her two sons, effect rollovers to respective Inherited IRAs as we are well within the 60 day rule? Or do they lose eligibility to do so when it was paid to the estate? Can the sons still provide evidence of beneficiary status after the fact?

Thank you. – Lou

Answer:

There is no way to roll over those funds into inherited IRAs. An estate is a non-spouse beneficiary, and a non-spouse beneficiary cannot do a rollover. The distributed funds are taxable, and there’s nothing that can be done at this point to stop that.

Question:

Hello Mr. Slott,

I met you years ago at the AZ estate planners council.  I just read your article about annuitized IRA accounts not being able to be calculated toward your RMD of other annuities.  My confusion is around the Fair Market Value the insurance companies send out every year.  I would have assumed you could use that to determine that there was excess which could then reduce the withdrawal from another IRA? 

Is there a reason my thought is way off?

Thank you. – Darren

Answer:

There are a lot of grey areas when it comes to IRAs and annuities. That said, if you’re annuitizing a contract over a life expectancy or over a joint life expectancy, it’s not going to be able to be aggregated with other accounts. Essentially, once annuitized in such a manner, the annuity becomes a pension.