October 24, 2018 at 6:24 pm #1376wanttoknowParticipant
In the recently discontinued forum I started a thread asking whether I could purchase an immediate life annuity in the IRA I inherited from my brother, who died in 2003 at age 65 without starting distribution. (I started taking RMDs in 2004 based on my life expectancy of 17.8 years, and have four RMDs to go.)
Alan S. and DMx both said probably not because it could exceed the life expectancy period specified by the IRS for defined contribution plan beneficiaries. (I.R.S. regs. do not directly address annuitizing by DC plan beneficiaries.)
I have since researched annuities in retirement plans in general, and learned the following:
1. The owner of an IRA can purchase an immediate annuity in the IRA for the joint lives of the owner and beneficiary. Had my brother done that before his death, I would now have a life annuity which could extend beyond the life expectancy mentioned above.
2. If the participant in a defined benefit plan dies before the annuity starting date, the designated beneficiary can take a life annuity.
I’d be interested in any comments on the contradiction between a life annuity being available to the survivor when the decedent has annuitized his IRA based on their joint lives (#1 above) and to the designated beneficiary of a defined benefit plan (#2 above); but not to the beneficiary of an inherited IRA.October 25, 2018 at 4:33 am #1378Alan S.Participant
I really do not see a difference here. In both 1 and 2 above the owner/participant made the decision while still living to control how long the beneficiary would collect. In traditional DB plans, the plan might offer different % amounts (eg 50% or 100%) of the participant’s benefit. The higher the % the beneficiary will get, the lower the benefit for the participant. IRA options for beneficiaries are also determined by the IRA owner, the beneficiary cannot change the format after they inherit. I think you were asking why you could not take the lump sum your brother left you and annuitize it, but you could not have done that under 1. above either, and you could not change the benefit structure you would inherit under a DB plan either. So in all 3 cases, the participant determines the options the beneficiary will inherit.October 25, 2018 at 6:55 pm #1379wanttoknowParticipant
In the case of #2, I don’t see how the participant has any control over how the beneficiary takes the benefits.
But the contradiction I pointed out has to do with whether the beneficiary can receive the benefits in the form of a life annuity. In the cases of #1 inherited two-life annuity in an IRA and #2 inherited not-yet-annuitized defined benefit plan, a life annuity is permitted. So I’m wondering why not also in the case of an inherited IRA whose owner died before the required beginning date and hadn’t started distribution.
- This reply was modified 3 years, 8 months ago by wanttoknow.
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