Annuity taxation question

[Allen Trent]

So as long as he rolls over the $188,000 into another qualified account, will he only be taxed on the $100,000 that he keeps as long as he rolls the $188,000 within 60 days?

Correct. A spouse bene has the right to use the 60 day rollover. A non-spouse cannot use the 60 day rollover option. The current plan 1099 will still report 288k taxable to IRS. The client will then have his CPA report that 188k was rolled into an IRA within the 60 days, thus only causing 100k to be truly taxable. Try to talk him into having his CPA run the #s to show him how bad the taxes (and possibly Medicare premium increase) will be from keeping 100k instead of possibly just taking 25k over 4 years.

Also, no matter how many IRAs a person owns, only 1 60 day rollover per year is allowed by the IRS now. It changed a few years back.

Ideally, if he can get the current IRA custodian to cancel the lump sum distribution death claim election & change it, it would be best to avoid the full 288k 1099 in the 1st place and start over with a better death claim choice for what he wants & needs

 

[rc26]

Since the spouse was only in year 5 of 10, would spousal continuation eliminate the surrender charges?

 

[Allen Trent]

Since the spouse was only in year 5 of 10, would spousal continuation eliminate the surrender charges?

Spousal assumption is different than spousal rollover. Spousal assumptions are when they take over the exact existing contract. Spousal continuations/rollovers are a tax move to take the death claim & do a tax free rollover to an IRA anywhere they want

 

[pfg1]

Since the spouse was only in year 5 of 10, would spousal continuation eliminate the surrender charges?

I had a client that continued his spouse annuity, that had about 5 years left on surrender charge. The surrender charges went away due to death, he was free to do what he wanted with the money. It was qualified money as well. He could have taken the cash (and paid the taxes) or moved it to another IRA, but chose to leave it where it was.

 

[Allen Trent]

I had a client that continued his spouse annuity, that had about 5 years left on surrender charge. The surrender charges went away due to death, he was free to do what he wanted with the money. It was qualified money as well. He could have taken the cash (and paid the taxes) or moved it to another IRA, but chose to leave it where it was.

Yup. I think each carrier & each product is different. Some carriers, especially those old high interest guarantee products, pay a lower death claim interest rate because the high guarantee is only contractual to the original owner, not the beneficiaries on spousal assumption, 5 year deferral, or inherited RMD

 

[Nate insurance]

So I basically got this as a kickback. Not understanding. It’s an inherited IRA from his spouse. Inherited IRAs are allowed a 60 rollover indirect rollover which is what he did.

 

[Nate insurance]

So I changed it to a traditional IRA/Assumed and they accepted it as that.

 

[Allen Trent]

So I changed it to a traditional IRA/Assumed and they accepted it as that.

That is good. An inherited IRA is a very specific account title that differs greatly from a Spousal Assumption. An inherited IRA has mandatory immediate RMDs required based not only on the beneficiaries age, but also on the IRS beneficiary life expectancy tables that more aggressively shorten life expectancy each year RMDs are taken.

A spousal assumption allows the spouse to treat it as their own for tax purposes including potentially not having to take RMDs if they are under age 70 1/2.