Annuity Purchases and Partial IRA Distributions Possible for Beneficiary's Life

***These articles are part of an archive. They should not be relied upon for current information.

The IRS privately ruled that beneficiaries of an IRA owner who chose minimum distributions based on his single life expectancy could elect to receive distributions over the life expectancy of his oldest designated beneficiary, determined as of the year the IRA owner reached age 70½. (IRS Letter Ruling 9651040)

The IRA owner was born in March 1923, so his required beginning date for IRA distributions was April 1, 1994. He made a written election to receive minimum distribution payments based on his single life expectancy using the annual recalculation method. He had started to receive minimum distributions as required by Code Sec. 401(a)(9)(A) at the time of his death in 1995.

We wanted to establish a bit of extra income. There was a good recommendation about ImmediateAnnuities.com on CNN. We also liked that we could see excellent reviews about them on Google. They were very thorough from our first inquiry to when we decided to buy our annuity from Mass Mutual. They always answered our questions promptly and followed up with the insurance company, too. We have been receiving our monthly payments since last November and couldn’t be happier. What more can we say?

Keith and Samantha Isley

Read 650+ verified reviews

The IRA owner named several family members, including his wife, as beneficiaries of the IRA assets remaining at his death. One of his beneficiaries asked the IRS whether he could receive distributions from his share of the IRA over the life expectancy of the oldest beneficiary, the IRA owner's widow, based on the age reached in 1993, the year the owner turned 70½.The IRS approved the beneficiary's proposed distribution method.

The IRA owner didn't elect recalculation of his spouse's life expectancy, so her 1993 life expectancy is reduced by 1 for each year after 1993. That calculation will not be affected by the death of either the spouse or the beneficiary.

Observation:

The IRS ruling is a surprisingly tolerant interpretation of the Code Sec. 401 (a)(9)(B)(I) requirement that post-death distributions be made at least as rapidly as lifetime distributions. Here the IRA owner elected to receive lifetime distributions on the basis of his own life expectancy, without regard to his beneficiary's life expectancy, yet the IRS allowed post-death distributions over the beneficiary's lifetime.

Recommendation:

The IRA owner here gained no advantage from his election to use his own life expectancy instead of his and his wife's joint life expectancy. The only impact of electing the joint life expectancy would have been lower minimum required distributions during his lifetime. Even though this ruling put these beneficiaries in the same position they would have been in had the IRA owner elected to use his and his wife's joint expectancy, there seems to be no good reason to elect single rather than joint life expectancy for minimum distribution purposes.