annuity conversion to Roth

How is an IRA annuity (SPIA or VA) converted to Roth IRA and how is it handled upon annuitant death after conversion? 🙄



A VA can be converted to a Roth and 2 years ago the IRS issued a set of complex rules to determine the actual FMV of the VA for determining the taxable amount. Certain fringe benefits of the VA must be valued and if they exceed a de minimus amount they are added to the current cash value. In addition, the insurer may charge surrender charges because a new contract in a Roth wrapper will replace the current one in the TIRA wrapper.

As for a TIRA that has been annuitized, I do not believe it can be converted because is no longer has a full market value. In theory a present value of the cash flow could be calculated, but I have not heard of any ruling on that or attempt to secure a PLR to approve it. The IRA annuity therefore should first be converted to a Roth prior to annuitizing it.

If a VA is converted and the annuitant passes, a non spouse beneficiary must take RMDs under the Roth rules. A spouse has many more options since they can make the Roth their own, and the annuity may also contain joint and several benefits for the surviving spouse. Annuity products now offer several options and fringe benefits, most of which are adaptable to TIRA or Roth IRA accounts.



Thanks Alan. Is this the info, from 2005, that you are referring to?

Tax Consequences of Converting a Non-Roth IRA Annuity to a Roth IRA

http://benefitslink.com/taxregs/2005_temp_roth_annuity.html



Yes, that’s it. There were some abusive schemes geared to converting these to Roth IRAs at FMVs well below the intrinsic value of the contracts. The IRS put a halt to it with this ruling.

These additional values also apply to determining the market value for RMD calculation purposes, so someone with an IRA annuity will need to know that value in determining the next year’s RMD.



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