The sale of annuities to people who don’t need them has been the subject in the press and in the courts. It’s old news. So here’s a switch: a story about a new opportunity to sell annuities to people who really need them.
The opportunity has arisen thanks to a new IRS letter ruling obtained by Seymour Goldberg. Goldberg, a Garden City, New York attorney, who is one of the nation’s foremost experts on IRA distributions, was frustrated by a case brought to him by Ed Slott, an accountant who often lectures on IRA rules to advisors. That led him to try to get the IRS letter ruling.
According to Goldberg, one of Slott’s clients, a single individual, died owning a Keogh account. With a Keogh, which is a retirement plan for self-employed individuals, the self-employed person who owns the account is the account’s sponsor. Thus, when the account owner dies, so does the account’s sponsor.
If you’re married and own a Keogh, then your spouse can roll the assets into an IRA upon your death and it is not a taxable event. The spouse preserves the tax deferral on the assets and can withdraw them based on the IRS required minimum distribution rules over his or her life expectancy.
In the case of a Keogh owner who dies and who has no spouse, however, the absence of a sponsor for the Keogh forces heirs to the account to take an immediate distribution. There is no way to preserve the tax deferral, and the heir will get stuck paying tax on the entire Keogh account they inherit in one lump.