What would you do with an inherited IRA annuity

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What would you do with an inherited IRA annuity

Postby investmentchallenged » Sat Jun 29, 2013 10:04 am

I've recently an inherited a Beneficiary IRA annuity from my mother. My mom invested her 401K into a beneficiary IRA for me to inherit. She has recently passed away before turning 70.5 years old, I'm eligible for approx. 3% of value this year (?RMD?) and now her investment broker would like me to reinvest this money, over $250,000, into a similar beneficiary IRA account. I'm currently in my mid 40's,without heirs and am quite challenged with financial investments. I've been advised from well meaning friends to seek advice from Fee-only financial planners to speaking with someone from Edward Jones investments or possibly Fidelity Investments. What would you advise me to do?
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Re: What would you do with an inherited IRA annuity

Postby hoppy08520 » Sat Jun 29, 2013 12:48 pm

investmentchallenged wrote:I've recently an inherited a Beneficiary IRA annuity from my mother. My mom invested her 401K into a beneficiary IRA for me to inherit. She has recently passed away before turning 70.5 years old, I'm eligible for approx. 3% of value this year (?RMD?) and now her investment broker would like me to reinvest this money, over $250,000, into a similar beneficiary IRA account. I'm currently in my mid 40's,without heirs and am quite challenged with financial investments. I've been advised from well meaning friends to seek advice from Fee-only financial planners to speaking with someone from Edward Jones investments or possibly Fidelity Investments. What would you advise me to do?

Hello and welcome to the forum. Inherited annuity IRAs can be complex. Given the complexity and your admitted challenge with financial investments, as well as the high value of this account, I recommend getting paid hourly advice from an expert who can help you understand the specific contract and its terms and what your options are, including doing nothing (which might be the best option).

I recommend going slow. For example, this:
now her investment broker would like me to reinvest this money, over $250,000, into a similar beneficiary IRA account.

Sounds like a clever way for her broker to rip off two generations and transfer even more of your late mother's wealth into your broker's account. The broker already made a very nice commission on the initial transfer, and now he/she wants to do it again.

Also, stay away from Edward Jones. Search the forum here for plenty of posts that will tell you why.
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Re: What would you do with an inherited IRA annuity

Postby Jim180 » Sat Jun 29, 2013 1:05 pm

Follow the advice from your friends and see a Fee-only advisor.
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Re: What would you do with an inherited IRA annuity

Postby Alan S. » Sat Jun 29, 2013 11:45 pm

I agree that you should work with a fee only advisor to determine the best options for dealing with this inherited IRA annuity. The options available from the current insuror probably differ from what is available from another insuror or certainly from the custodian of a non annuity inherited IRA. The most important two things to be aware of here is that you must either satisfy annual RMDs starting in the year following her death or elect the 5 year rule which is a poor option in almost all situations. The other vital thing to be aware of is that you CANNOT roll over any distribution (check made out to you) because this is a non spouse inherited IRA. There is NO fix for a huge tax bill should you receive a check made out to you for the full amount. But you can change custodians by doing a direct trustee transfer to another custodian. That transfer would not be a taxable event. You also need to select your successor beneficiary (or beneficiaries) on your inherited IRA. The account title must include both your name and your mother's name and will carry your SSN.

Don't feel locked into an annuity just because that was the product you inherited. You will essentially be receiving life expectancy income from this IRA whether it continues as an IRA annuity or not. For example, if you were age 45 in the year following your mother's death, your RMDs are based on a life expectancy of 39 years. You can take out more in any year you wish, but cannot take out less than the IRS rules require or you become subject to a 50% penalty on the amount you should have taken out. Finally, check with your mother's tax preparer to determine if her IRA had any "basis" from non deductible contributions. Those would have been reported on Form 8606 for the year she made the contributions. If her IRA was formed by a rollover from her job, you would have to check with the paperwork for the year of the rollover to determine if any after tax contributions were rolled over to her IRA. If you inherited basis, all your distributions would be partially tax free, probably a very small %.
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Re: What would you do with an inherited IRA annuity

Postby Kevin M » Sun Jun 30, 2013 2:03 am

Unless there were serious penalties, I would get rid of the annuity and do a direct custodial transfer to Vanguard. Vanguard will provide some advice for free, but you also can pay them for more detailed advice. However, I have never used their advisory services, so don't really know how good they are.

I personally would do the research myself and figure out what my options were in terms of dumping the annuity, but if you're not up to it, then as others suggest, paying a fee-only advisor may be the best way to go.

Do not trust brokers or insurance agents for investment advice; their goal is to make money for themselves, not to make money for you.

There are many very knowledgeable contributors here (Alan S. is one of them; I trust his advice). If you get more details about the annuity and what your cancellation options are, you may be able to get some more detailed advice here.

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