MasterDex 10 Annity in IRA

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kayo
Posts: 60
Joined: Sat Aug 18, 2012 9:54 pm

MasterDex 10 Annity in IRA

Post by kayo »

A relative of mine rolled their IRA into an Allianz MasterDex 10 Annuity in 2007, has been taking RMD's, and now is looking to annuitize. This can be done in a variety of ways, yearly, quarterly, monthly, over 10 years, 20 years, etc. For the sake of discussion, let's say we are at peace with this and that everything so far is working as planned.

Here is where the plan is falling off the rails: the admin in the office that sold the product says that the annuity can only be taken as a distribution and cannot be disbursed on a custodian-to-custodian basis into another IRA. Can this possibly be true? [The players on the MasterDex side have already made their money selling and servicing the product, so I don't see the incentive to them create an additional obstacle. The money is exiting the product either way.]

Let's say they are incapable of doing this, and the owner of the IRA opts in for a yearly payment on, say, July 1, it gets paid as a distribution, and then signed over to a Vanguard Rollover IRA. Since July 1 2018 is Sunday what if the check is issued on Monday July 2? And then next year the check is issued on Monday July 1 2019? It's not clear to me that this meets the letter of the law for IRA rollovers done by individuals. Does the fact that the IRA would be annuitized with an annual payout count as "close enough" for the IRS?
Waiting period between rollovers. Generally, if you make a tax-free rollover of any part of a distribution from a traditional IRA, you cannot, within a 1-year period, make a tax-free rollover of any later distribution from that same IRA. You also cannot make a tax-free rollover of any amount distributed, within the same 1-year period, from the IRA into which you made the tax-free rollover.

The 1-year period begins on the date you receive the IRA distribution, not on the date you roll it over into an IRA.
Obviously one could bite the bullet and pay the surrender charges, take the lump sum payout, and then roll it over. I am looking for alternatives that get the money out of annuity jail and keep it in an IRA so as to avoid a tax consequence.

Many thanks.
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Oicuryy
Posts: 1959
Joined: Thu Feb 22, 2007 9:29 pm

Re: MasterDex 10 Annity in IRA

Post by Oicuryy »

kayo wrote:Here is where the plan is falling off the rails: the admin in the office that sold the product says that the annuity can only be taken as a distribution and cannot be disbursed on a custodian-to-custodian basis into another IRA. Can this possibly be true?
Yes, it could possibly be true.

It could be possible that the IRS considers annuity payouts from an Individual Retirement Annuity to be required minimum distributions. RMDs cannot be rolled over into another IRA.
kayo wrote: Obviously one could bite the bullet and pay the surrender charges, take the lump sum payout, and then roll it over. I am looking for alternatives that get the money out of annuity jail and keep it in an IRA so as to avoid a tax consequence.
Does your annuity offer any free withdrawals?

Ron
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Alan S.
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Re: MasterDex 10 Annity in IRA

Post by Alan S. »

Any IRA that is annuitized after IRA owner is receiving RMDs is treated as paying out RMDs which cannot be rolled over, except in the case of the year of annuitization. In that first year (ONLY), the annuitized IRA has a prior year end balance and the total RMD is based on the usual calculation, therefore once the total amounts distributed for all IRAs equals the RMD, the rest can be rolled over. After that year, each the annuitized IRA distributes it own RMDs and other IRA accounts separately distribute theirs.

There are detailed IRS Regs in 1.401(a)(9)-6 that outline what annuity options meet IRS RMD requirements. For example, the annuity payouts cannot be too small because the annuity pays out on the joint life expectancies of the owner and a much younger beneficiary. That payout must be increased by a formula so the IRS gets it's money at the rate desired. If the annuity is for a short period certain, that simply results in the RMDs being higher and the payouts ending sooner. While complex, insurors are expected to understand the IRS Regs and act accordingly, ie RMDs Regs may act to restrict the payout options otherwise available for those not subject to RMDs.
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Oicuryy
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Re: MasterDex 10 Annity in IRA

Post by Oicuryy »

Alan,

What do you make of answer A-10 in 1.401(a)(9)-6? It says in part (emphasis added):
General rule. If distributions commence to an employee on a date before the employee's required beginning date over a period permitted under section 401(a)(9)(A)(ii) and the distribution form is an annuity under which distributions are made in accordance with the provisions of A-1 of this section, the annuity starting date will be treated as the required beginning date for purposes of applying the rules of this section and § 1.401(a)(9)-2.
That is why I thought that payouts from annuitizing before age 70.5 might also be treated as RMDs that could not be rolled over to another IRA.

Ron
Money is fungible | Abbreviations and Acronyms
Alan S.
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Re: MasterDex 10 Annity in IRA

Post by Alan S. »

Oicuryy wrote:Alan,

What do you make of answer A-10 in 1.401(a)(9)-6? It says in part (emphasis added):
General rule. If distributions commence to an employee on a date before the employee's required beginning date over a period permitted under section 401(a)(9)(A)(ii) and the distribution form is an annuity under which distributions are made in accordance with the provisions of A-1 of this section, the annuity starting date will be treated as the required beginning date for purposes of applying the rules of this section and § 1.401(a)(9)-2.
That is why I thought that payouts from annuitizing before age 70.5 might also be treated as RMDs that could not be rolled over to another IRA.

Ron
Ron,
Yes, you are correct. If annuitization begins prior to the RBD, the RBD is deemed to be the date of the first payment rather than 4/1 of the year following the year IRA owner reaches 70.5. If the IRA then dies before the standard RBD, they are deemed to have passed prior to the RBD and that may affect beneficiary stretching options. However, the conditions with the original post was that the annuitization occurred after the usual RBD. Either way, the payouts are not eligible for rollover with the exception of the first year when other non annuitized IRA accounts are also aggregated with respect to RMDs with the annuity. SInce the annuitized IRA before the usual RBD will be the only IRA subject to RMDs, none of those payouts can be rolled over because there is no other IRA with RMDs to aggregate.

Note that A-4 of 1.401(a)(9)-6 appears to clearly allow for annuitization after the usual RBD. What is confusing is that Natalie Choate, noted expert on RMDs and other IRA rules has stated that annuitization MUST occur prior to the RBD, but A-4 indicates otherwise, so there is a disconnect there. The entire Reg 1.401(a)(9)-6 is very confusing and drafted mostly with DB plans in mind. It is mostly pre occupied with disallowed distribution rates that are too slow, but says little about those that pay out quickly. For example, if IRA owner wants to annuitize over 7 years at age 65, under the current Regs, the RBD appears to be moved up to 65 and the high payout is all RMD, meaning that none of it can be rolled over. With no account balance remaining however, the IRS does not receive a 5498 showing any account balance, so RMD administration in this area is lacking.
jimmy
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Joined: Sat Apr 27, 2013 1:29 am

Re: MasterDex 10 Annity in IRA

Post by jimmy »

Take the free w/d amount every year until it surrenders or bite the bullet surrender the annuity and roll it over. Remember every year you keep it in you are paying 2% more in fee's than you should be. This adds up over time. What is the CDSC if you surrender today?
Mazz
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Joined: Tue Oct 19, 2010 12:51 pm

Re: MasterDex 10 Annity in IRA

Post by Mazz »

Tell him to look at Jefferson National.
It is by far the best Variable Annuity platform in the country.

They charge a flat annual fee of $240 to be on the platform. Their platform offers a huge selection of good funds from companies like Vanguard, PIMCO, and DFA.
Their VA program is even cheaper than Vanguard.

The cost savings is so huge, it is worth it to transfer now and pay the surrender penalty.

I recently transferred one from Lincoln Financial. The extra high annual fees make it worthwhile to take it away ASAP.
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