Spousal rollover of IRA annuity

[katieinny]

Perhaps those of you who deal with annuities more than I do can offer some guidance.

A spouse inherits her husbands IRA annuity and decides to roll it over to her own IRA. The insurance co. says that she can roll over the value as of the date of death, but she cannot rollover the "stepped up" death benefit.

What is a "stepped up" death benefit?

[Belgarath]

Interesting. I had always heard of "stepped up" benefits with regards to an estate tax situation, not a rollover.

I'm only speculating here - guessing that this is perhaps a variable annuity, that has a death benefit equal to the highest value it previously attained - the type that sunk Allmerica...

But if that's correct, which it probably isn't, then it seems quite odd that an annuity with this "death benefit" provision could qualify for IRA purposes as an annuity, with no life insurance element, yet not be considered "rolloverable."

So I'm as baffled as you, but would love to hear the details once you get them.

[katieinny]

Thank you for your reply. I hope to get more details on Monday. It seems to me that someone (either the spouse or the insurance co. rep.) is mixing up an IRA with a qualified plan. I think a stepped up death benefit could be applicable if the account in question is part of a qualified plan, not an IRA.

[mbozek]

The ins co has to provide the spouse with a tax report stating what portion of the account can be rolled over. So ask for it. Generally the entire value of an IRA annuity contract can be rolled over to an IRA since an IRA cannot invest in Life insurance. In a qualified plan a participant's account can be invested in LI where the cash value is eligible to be rolled over and the death benefit is paid as non taxable proceeds to the beneficiary.