IRA in an annuity question

[taxmom34]

my sister died recently, she had an IRA that was in an annuity. I thought the IRS rules would apply to the beneficiaries, (5 year dispersement & rolling over ). but the annuity company told niece that because this was an annuity they dissolve the account , then make the distributions to the beneficiaries and they are taxed in the current year. does anyone know if this is true? I assumed that because it is an IRA it should be treated as such for distributions, does annuities have an exemptions?

[Burke]

The beneficiaries have all those options; i.e, rollover, 5-year period, and lifetime distribution. Are you sure they were named beneficiaries? If the beneficiary was the estate, trust or a charitable entity, then only option is the 5-year. Sometimes, the insurance company will require that the amount meets a certain minimum for an annuity payout. Was the annuitant already receiving payments? RMD's? How much money would each bene be entitled to?

[taxmom34]

annuitant was receiving RMD of around $3000. money left in the account is $48000 and 3 beneficiaries. No trust. one of beneficiaries wants to rollover in an IRA. I just don't understand the position the insurance company is taking.

[Lion]

Read the contract with the annuity company for details.

[Roland Slugg]

The rules for an inherited (non-spousal) IRA are NOT the same as for someone's own IRA. There are two main differences:

(A) For an inherited IRA the beneficiary has only two distribution options ... the 5-year option or his life expectancy option. If he chooses the latter, distributions must begin by the end of the year following the year the IRA owner died.

(B) An inherited IRA can not be rolled over into the bene's own IRA, but can be rolled over into an "inherited IRA" account with a different trustee. Furthermore, a rollover of an inherited IRA must be done via a direct trustee-to-trustee transfer. The bene can't receive the funds and move them to another trustee himself like he can with his own IRA.

The life insurance company that wants to cash out your sister's IRA probably doesn't allow for bene's to set up inherited IRAs. Thus, if your niece and the other benes want to stretch their inherited IRAs over their own life expectancies, they must arrange to have the current trustee ... i.e. the life insurance company/annuity issuer ... send their inherited shares to another trustee via a trustee-to-trustee transfer. If any of them do this, they should be sure to let the new trustee know that the incoming funds must go into an "inherited IRA" account.

[Burke]

. I just don't understand the position the insurance company is taking.

It may not be the "company." It may be an agent who is not familiar with all the options. You need to move up the food chain and discuss with someone higher up who knows the proper application of these options. See this link for a detailed discussion to start with: https://www.fidelity.com/viewpoints/...non-spouse-IRA. When I said rollover, I meant a transfer into an inherited IRA. This bene cannot roll it over into an existing IRA in their name, as Roland points out, since they are not a spouse. That is because no future contributions can be made to an inherited IRA. Therefore, it has to be in a separate account.