I have a client whose insurance agent believed they were doing a tax- free transaction in moving funds from her deceased husbands nonqualified annuity, to annuities in the surviving spouses names. The old annuities were cashed and the funds received by my client were invested in new annuity accounts in the surviving spouses name within 60 days. The 1099-R received at the end of the year showed the annuity gain as fully taxable and even had federal income tax withheld. My own research concluded there is no 60 day rollover rule that pertains to nonqualified annuities. Also, there appeared to be no way to avoid taxation to a surviving beneficiary (spouse or otherwise) when the annuity owner dies before the annuity matures. One source I talked to indicated if the beneficiary is also named as the "annuitant" in the account set up, then when the annuity owner dies, the annuitant slides over to become the annuity owner and a tax- free 1035 exchange is possible to other annuities. Any input is appreciated re # 1, if any way to avoid the above being taxable to my client, given the cash distribution and reinvestment within 60 days fact pattern, and re # 2, if the strategy described re naming the beneficiary as the "annuitant" to accomplish the future tax-free exchange after death of the named annuity owner is at all valid.
- posted
17 years ago
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