Beneficiary of Annuity 10% penalty?

[Donnainnj]

I am one of the beneficiaries of an annuity. If I cash out will I be responsible for the 10% penalty as well as the taxes? This was my Dad's, he was over 59 1/2 and I am not. Thanks for any help you can offer.
Donna

 

[crisi]

It is going to depend on the terms of the annuity. You'll have to read the paperwork.

 

[Sheaboys]

My Dad passed away in February at the age of 64 (december birth date). He had a retirement CD. Because it is a retirement CD, I was able to open another CD that is retirement. I can receive payments yearly, starting next year, since he would be 65 at that time. However, if I want to cash it in, I would pay the penalty for taxes, because I am not at retirement age. But if I want to switch the CD to a retirement CD or account that I can put money into I can do that too.

 

[GR8LSUFAN]

I could be wrong. But if you have an IRA you are not required to take money out until you are 70 1/2. If you inherit the money, you do not have to take the money out until your father would have turned 70 1/2.

To make absolutely sure contact a financial advisor.

I found the following information on www.fidelity.com
....


The IRS requires IRA owners to start taking minimum required distributions (MRDs) no later than April 1 following the year in which they turn 70½.1 These rules also apply to whoever inherits an IRA. In addition, distributions taken prior to age 59½ (either by the IRA owner or the inheritor) could be subject to a 10% early withdrawal penalty, depending on the type of IRA.
Your ultimate course of action will be determined by your age, the age of the IRA owner, your income needs, and the type of IRA you inherit. As a non-spouse beneficiary, you do not have the option of rolling the assets into your own IRA. If you inherit IRA assets from someone other than your spouse, you generally have two options from which to choose:
1. Transfer the assets to an inherited IRA beneficiary distribution account.
When you transfer assets from a traditional IRA into an IRA beneficiary distribution account (inherited IRA), the rules for MRDs still apply. This means you must withdraw a certain amount of money from your inherited IRA each year, based on your age and life expectancy. In the case of a non-spouse inheritor though, MRDs will need to begin before the inheritor reaches age 70½. These distributions may be taxed as ordinary income. However, if the original IRA was a Roth IRA and the assets were in the account for five years or more, distributions may be tax free. Consult a tax adviser if you feel you’ve inherited a Roth IRA that wasn’t opened for five years before the original owner passed away.

hth

 

[Donnainnj]

Thanks for all the info you guys are sharing. I have the paperwork coming from the company that held the annuity. Dad never kept anything, paid a bill then threw it out. After we send in the forms they will give us our options, being a planner I was just trying to get a head start on what we were going to do.
Donna

 

[nunzia]

I could be wrong. But if you have an IRA you are not required to take money out until you are 70 1/2. If you inherit the money, you do not have to take the money out until your father would have turned 70 1/2.

To make absolutely sure contact a financial advisor.

I found the following information on www.fidelity.com
....


The IRS requires IRA owners to start taking minimum required distributions (MRDs) no later than April 1 following the year in which they turn 70½.1 These rules also apply to whoever inherits an IRA. In addition, distributions taken prior to age 59½ (either by the IRA owner or the inheritor) could be subject to a 10% early withdrawal penalty, depending on the type of IRA.
Your ultimate course of action will be determined by your age, the age of the IRA owner, your income needs, and the type of IRA you inherit. As a non-spouse beneficiary, you do not have the option of rolling the assets into your own IRA. If you inherit IRA assets from someone other than your spouse, you generally have two options from which to choose:
1. Transfer the assets to an inherited IRA beneficiary distribution account.
When you transfer assets from a traditional IRA into an IRA beneficiary distribution account (inherited IRA), the rules for MRDs still apply. This means you must withdraw a certain amount of money from your inherited IRA each year, based on your age and life expectancy. In the case of a non-spouse inheritor though, MRDs will need to begin before the inheritor reaches age 70½. These distributions may be taxed as ordinary income. However, if the original IRA was a Roth IRA and the assets were in the account for five years or more, distributions may be tax free. Consult a tax adviser if you feel you’ve inherited a Roth IRA that wasn’t opened for five years before the original owner passed away.

hth

I inherited some IRAS last year. Both my Aunt and Mother passed. So I am a non spouse inheritor, of course. After research I found the rules for Inheritance IRAS FORCE you to convert the IRA to an Inheritance IRA and you then MUST take yearly distributions based on your life expectancy (or a couple other options). You are taxed on everything you take out but there is no penalty ( I did have to pay a penalty on CDs at once establishment, but not another..go figure). If you fail to to take a RMD then it is taxed at 50%. You also have the option to take the entire amount at once (and be taxed on all of it at once) or do a 5 year plan for distribution. You cannot combine the Inheritace funds with any other IRA nor can you add to it. I also inherited some Roth Iras and yes, those paid in full with no taxes. You really need to speak to an accountant at the very least to figure out how to pay as little in taxes as possible. My accountant really helped me.

 

[gjl]

Removed

 

[PatsMom]

There is no penalty on inherited money. Just income tax on any taxable portion of the distribution. You do need to find out what type of annuity it is though. If it is an IRA, you may have options to stretch payments out over your life expectancy - it depends on the annuity providers payout options. If it is non-qualified you may also have options to spread the payments such as over five years. Which may be worth consdering if there is a signifcant taxable gain in the account.

See a good financial advisor or CPA! The options for inherited retirement money are complex. For a non-spouse delaying until the decedent would have been 70 1/2 is not an option - that only applies to spouses.

 

[eliza61]

Is it an annuity or an IRA. two different animals some times.

An ira you will get a penality if you cash it out. An annuity you maybe able to cash out but you may not get the full amount of the annuity. It depends on how long your dad had it, how he paid for the annuity and a few other factors.
We need a bit more informatin

 

[Donnainnj]

I believe the annuity was paid for with a combination of his 401k cashed out and my mothers retirement plan when she died. He was receiving monthly payments on the annuity at the time of his death. I am hoping we will get more concrete info when the paperwork is filled out.
Donna

 

[A Mickeyfan]

when my mom died, my sister and I took the 5 year plan. This year she will be gone 5 years and we have to take the remainder by the 31st of the month she passed away in, at least that is what they told us.