What to do with Variable Annuity IRA that I'm a beneficiary of?

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Topic Author
lgb
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Joined: Fri Mar 01, 2019 9:46 am

What to do with Variable Annuity IRA that I'm a beneficiary of?

Post by lgb »

I was notified this week that I'm a beneficiary of an Annuity, three actually - where I believe they were all IRA's I guess put into the Annuity, not all with the same company. Two of them on the Claim form seem to want you to take a Lump Sum and don't provide much other option. Whereas one other also offers a Lump Sum option along with an option to do a Transfer, Rollover or Direct Exchange by checking a box and advising them of what company you'd want to do that with. Not entirely sure what that means. Then separately they also offer for you to keep it with them in some sort of interest bearing account (Benefit Accumulation Account?). Then there is one other separate option which is to I believe again keep it with them, but have it is a 'Stretch' Account.

I'm not too fond of keeping it with these 'Insurance' companies and whatever investment stuff they have. I believe there is a benefit to the 'Stretch' account tax-wise - but my question is - can't I just move these over to my normal Brokerage I use where I already have Inherited IRA's, or Joint Brokerage, or 401K's or SEP Retirement or to just start something new as some sort of Inherited account(s) and keep it as a 'Stretch' account? (maybe some of those styles accounts aren't allowed to move it into, not sure) vs. keeping it with these various Insurance Life companies... or taking it as a Lump Sum and subjecting it all to Income Tax.

These are subject to the 10-year rule as the person that passed did so in 2020. I'm not the spouse, just a relative and named as a beneficiary. This is like under $65,000 Total

Just looking for some insight and discussion on this.
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Stinky
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Re: What to do with Variable Annuity IRA that I'm a beneficiary of?

Post by Stinky »

I’d request a transfer from the insurance companies to an inherited IRA account at your brokerage firm. Do the transfer trustee to trustee so you aren’t actually withdrawing from the annuities.

The fees are almost certain to be lower at the broker than within the variable annuity.

Then do your 10 year withdrawal thing.
It's a GREAT day to be alive! - Travis Tritt
Topic Author
lgb
Posts: 123
Joined: Fri Mar 01, 2019 9:46 am

Re: What to do with Variable Annuity IRA that I'm a beneficiary of?

Post by lgb »

The Transfer Trustee to Trustee - that is where you would check that box saying you want to do a Transfer I guess? and my Broker firm would know that this is the type of Transfer I would want to do? (not sure what Trustee means in my position on this, basically my Uncle passed and I'm just a nephew named as beneficiary by him).

For the two accounts where they don't really mention being able to do any sort of Transfer or rollover - is that just the insurance company not necessarily wanting to point that out as an option or can it really be that it isn't allowed or something because of the type of annuity or something?

Thanks for your reply!
Alan S.
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Re: What to do with Variable Annuity IRA that I'm a beneficiary of?

Post by Alan S. »

lgb wrote: Fri Apr 23, 2021 10:11 pm I was notified this week that I'm a beneficiary of an Annuity, three actually - where I believe they were all IRA's I guess put into the Annuity, not all with the same company. Two of them on the Claim form seem to want you to take a Lump Sum and don't provide much other option. Whereas one other also offers a Lump Sum option along with an option to do a Transfer, Rollover or Direct Exchange by checking a box and advising them of what company you'd want to do that with. Not entirely sure what that means. Then separately they also offer for you to keep it with them in some sort of interest bearing account (Benefit Accumulation Account?). Then there is one other separate option which is to I believe again keep it with them, but have it is a 'Stretch' Account.

I'm not too fond of keeping it with these 'Insurance' companies and whatever investment stuff they have. I believe there is a benefit to the 'Stretch' account tax-wise - but my question is - can't I just move these over to my normal Brokerage I use where I already have Inherited IRA's, or Joint Brokerage, or 401K's or SEP Retirement or to just start something new as some sort of Inherited account(s) and keep it as a 'Stretch' account? (maybe some of those styles accounts aren't allowed to move it into, not sure) vs. keeping it with these various Insurance Life companies... or taking it as a Lump Sum and subjecting it all to Income Tax.

These are subject to the 10-year rule as the person that passed did so in 2020. I'm not the spouse, just a relative and named as a beneficiary. This is like under $65,000 Total

Just looking for some insight and discussion on this.
We get constant reports of multiple inconsistent options from company to company, as well as frequent varying explanation of these options from different staff within each company. Before rushing into a decision, you need to carefully read the beneficiary clause in each contract because an given custodian can restrict the IRS options. Not only that, some of these restrictions are not written into the contract but stated to be company operating procedures. Try to get the operating procedures in writing - no way.

The problem is that owners of IRAs give little thought to what restrictions their beneficiaries are going to run into. And of course, the insurers who write these annuities can change their rules as they go. The Secure Act may well trigger even more changes in addition to those required in the Act itself.

One possible solution is attempt to have your choice of inherited IRA custodian other than an insurance company request a direct transfer to an inherited IRA with their firm. Generally, non insurance firms are less restrictive in their options, but the Secure Act itself is causing some upheaval. The IRS just published a current 590 B in which they misstated the Secure RMD rules, and just yesterday had to admit their error. The issue is that 10 year rule beneficiaries DO NOT have to take annual RMDs the first 9 years as Pub 590 B incorrectly stated. But you cannot do better than the 10 year rule unless you are disabled, chronically ill per IRS definition, or are not more than 10 years younger than the decedent. Those conditions would qualify you as an EDB (eligible designated beneficiary) and you could get the life expectancy stretch. These rules generally apply to all inherited IRAs after 2019, but insurance custodians may require additional limitations.

Given this backdrop, you will have to deal with each of these companies as best you can, but if you can have the account moved by transfer, you will be better off and your own beneficiaries even more so. Be careful not to request a distribution in any form, since a distribution payable to you cannot be rolled over and will be entirely taxable in the year of the distribution.
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Stinky
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Re: What to do with Variable Annuity IRA that I'm a beneficiary of?

Post by Stinky »

Alan S. wrote: Fri Apr 23, 2021 10:46 pm
One possible solution is attempt to have your choice of inherited IRA custodian other than an insurance company request a direct transfer to an inherited IRA with their firm.

{snip}

Given this backdrop, you will have to deal with each of these companies as best you can, but if you can have the account moved by transfer, you will be better off and your own beneficiaries even more so. Be careful not to request a distribution in any form, since a distribution payable to you cannot be rolled over and will be entirely taxable in the year of the distribution.
Alan S. gave some really good advice.

I have only very limited experience in making trustee to trustee transfers within my IRA. But when I did it (purchasing MYGAs), I worked with the "receiving" company to initiate the transfer, rather than the "original" company. So, in your case, I would start with your brokerage firm, and see if that works out for you.
It's a GREAT day to be alive! - Travis Tritt
Topic Author
lgb
Posts: 123
Joined: Fri Mar 01, 2019 9:46 am

Re: What to do with Variable Annuity IRA that I'm a beneficiary of?

Post by lgb »

Determined a couple weeks ago - that these accounts being inherited consist of:
1. Traditional IRA (two of them) - where claim form seems to only offer an option for a Lump Sum
2. Variable Annuity that is a Qualified account

Does that change any of the suggestions below in any way now that I've gotten a bit more details?
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Stinky
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Re: What to do with Variable Annuity IRA that I'm a beneficiary of?

Post by Stinky »

lgb wrote: Mon May 03, 2021 9:21 am Determined a couple weeks ago - that these accounts being inherited consist of:
1. Traditional IRA (two of them) - where claim form seems to only offer an option for a Lump Sum
2. Variable Annuity that is a Qualified account

Does that change any of the suggestions below in any way now that I've gotten a bit more details?
I don’t believe that this changes anything. All three of the annuities are qualified.

As recommended above, work with the brokerage to which you wish to transfer the funds. That firm should set up a trustee to trustee transfer from each of the insurance companies to the brokerage.

Post back if you have questions along the way.
It's a GREAT day to be alive! - Travis Tritt
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