What Type of Annuity Can be Rolled Over to an IRA?

Thursday, July 24, 2014

By Joe Cicchinelli, IRA Technical Expert

Follow Me on Twitter: @JoeCiccEdSlott

This week’s Slott Report Mailbag looks at potential annuities that can be rolled over to IRAs
as well as a follow-up question on a younger spouse inheriting an IRA. As always, we recommend you work with a competent, educated financial advisor to keep your retirement nest egg safe and secure. You can find one in your area here.

1.

I have small annuity account of approximately $4,000.00.

I would like to be able to access funds from time to time, but to cash this account (i.e. close it) out, the company would pay me only about half of it.

Is it possible to avoid this by rolling it over to an IRA? Also, can I still get an IRA at my age of 82?

Would appreciate help.

Joan Fogel

Answer:
If the annuity is a non-qualified annuity (an annuity that’s not held inside an IRA or company retirement plan), it cannot be rolled over to an IRA. However, if the annuity is a qualified annuity (such as an IRA annuity), then it can be rolled over or transferred into an IRA. You can open an IRA at any age, including after age 70 ½, and fund it with a rollover or transfer from another IRA or company retirement plan.

2..

This question is based on Beverly DeVeny’s post on a younger spouse inheriting an IRA.

First: why would the spouse establish an Inherited IRA? And in your explanation you mention why she is not subject to RMDs (required minimum distributions).

Second: I went back to Ed’s 2012 edition of The Retirement Savings Time Bomb. On page 136 Rollover, Ed writes: “Under the tax code, an inherited IRA is an IRA inherited by someone other than your spouse.”

Please clarify. Thank you.

Sincerely,
John Recchia

Answer:
While technically, an inherited IRA is an IRA inherited by a non-spouse beneficiary under the Tax Code, a spouse can basically be treated as a beneficiary by not rolling over or electing to treat the IRA as her own IRA. This IRA is often called an inherited IRA or a beneficiary IRA. A younger spouse beneficiary who inherits an IRA from her deceased spouse but needs to use the IRA funds before age 59 ½ should not do a spousal rollover. The reason is so she can avoid the 10% early distribution penalty that would apply if she did a spousal rollover before age 59 ½.
 

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