annuity to beneficiary - how not taxed?

[schirallicpa]

I have a client who's father passed away.  She was named on his annuity.  She received a check this week for 95000 after they withheld 25000.  So taxable amount will be 120000.  They went to see our local podunk "financial asset manager" and she told them that they should send the check back to the issuer, and have the issuer move the money (rollover) directly into some investment account so that they could avoid tax.

Now - I know I'm just the local podunk "tax person" in town, but since when can you avoid tax when you inherit a taxable annuity?

Am I missing something?

 

[FDNY]

This was probably an IRA or qualified annuity.  If it can be taken back there will be a more beneficial distribution option available.

[Catherine]

Annuities are contracts with the issuing company.  You should ask for the documents to see if an IRA rollover is allowed.

[FDNY]

Considering that the beneficiary is under age 70 1/2 there are 3 options available (sounds like an IRA or qualified annuity due to the amount of tax withheld).

1.  Open an inherited IRA, Life Expectancy method.

2.  Open an inherited IRA, 5 year method.

3.  Lump Sum distribution.

It appears beneficiary took option 3.    Local podunk financial manager may be thinking about a spousal beneficiary.

[Catherine]

20 minutes ago, FDNY said:

It appears beneficiary took option 3.

So it does appear however it might have been a default -- in which case it might be possible to roll it back and start over.  Especially if the check was not cashed.  

[schirallicpa]

It says on the attachment to the check "profit sharing plan"  

 

[ZoomnFinancial]

38 minutes ago, schirallicpa said:

It says on the attachment to the check "profit sharing plan"  

 

Don't know if it helps with your situation but a 401K Match from an employer is listed this way sometimes (I know mine is). 

[Lion EA]

I had a long-ago client with a Keogh plan with both a Profit Sharing Plan as well as a Money Purchase Plan component.  I think it was a Keogh.  She was self-employed.  (Left for cheaper preparation.)

[Roberts]

1 hour ago, schirallicpa said:

It says on the attachment to the check "profit sharing plan"  

 

Was this an annuity within a tax deferred account? Seems like if it was, the money would still be within the IRA type of account even though there was a lump sum distribution.

[jklcpa]

It might have been a requirement of the p/s plan to have the payout in the form of an annuity since this wasn't to a spouse. I agree with FDNY that it sounds like the annuity was already in place due to the father's retirement and your client chose to receive a lump sum.  Client should check to see if the funds can be returns and if rollover is an option.

[schirallicpa]

ok - I am piecing together info from her, and it sounds like JKLCPA you're right on the money.  Apparently she was offered a rollover, and didn't know what that meant so just had them cut the check.  thankfully, she had not cashed the check, and we might be able to send it back and have them do a direct.  Sometimes half the job is the detective work...........