We have seen many cases where the IRA is held in the form of an annuity product, with the insurance company as the custodian. I have read many contracts that impose costs or other expenses to split the account into Inherited IRAs for multiple beneficiaries. Please review your contract carefully to make sure there is no penalty before you make this election.
In the event you find out that there is a potential penalty, at least there is usually a solution:
- Retitle the account as an Inherited IRA with multiple beneficiaries, but keep it as only one IRA.
- Open up a self-directed IRA at a brokerage firm with the same title.
- Transfer the Inherited IRA from the insurance company in kind via a trustee-to-trustee transfer over to the new self-directed Inherited IRA account.
- Liquidate the annuity product that is held by the self-directed Inherited IRA account (there should be no penalty or income taxes because the annuitant passed away and it is being paid out all at once and into another IRA).
- Once the proceeds come into this new self-directed Inherited IRA, then split it into the various Inherited IRAs for each of the beneficiaries.
Sounds like a lot of work? It is, and that is the reason why you need an advisor you can trust to guide you through the process and you will most likely want to review all of your IRAs at this time in order to avoid having all these problems in the future.