Hey everyone, I could use a little advice here.
My father passed away a little over a month ago, and earlier this week, my mother received a fixed annuity claim form for a non-qualified annuity that father purchased about 10 years ago, naming Mom as the beneficiary.
There are a number of options for taking the distribution:
a) spousal option (continue the contract under Mom's name);
b) five year deferral (distribution deferred for five years or paid to beneficiaries upon mother's death);
c) lump sum (I'm assuming that this would be the current cash value rather than the annuitization value);
d) stretch option (annual payments over life expectancy, with any remainder at death to be paid to named beneficiary/ies);
e) annuitize (options for payment for a guaranteed period, lifetime payments, or life with guaranteed period).
I'm wondering what the best option for taking the distribution would be, and whether we want federal and state income tax withheld from the distribution?
My suspicion is that the options are listed in the most-favorable to least-favorable order for the insurance company and the sales agent (on-going account management fees and trailing commission), but the least-favorable to the most-favorable order for my mother.
Under the annuitize option, I assume that the lifetime payments is the worst option, in that payments would simply end upon my mother's death, with no payments to any beneficiary/ies.
My mother does not need the money from the distribution to meet current expenses, so any distribution would be rolled into her revocable trust.
I have a call in to her financial advisor, but would appreciate any additional thoughts or insight from the forum.
Thanks.
Comments
Given your mom does not need payments at this time, my personal feeling is either option a or c are most suitable.
If the fixed rate of the annuity is high and there are a few years left for maturity, you might want to keep it to enjoy higher interest rates so choose option a.
Otherwise, get a lump sum (option c) of the annuity and invest as she likes. She will be paying taxes on earnings though at her current tax rate.
If she has concern about paying taxes right now options b and d come into play. While these two provide tax flexibility, I do not know what if any pay in interest during that time.
Option d is suitable if she is in need of lifetime income and by annuitizing she might get higher payments but she will lose claim to the money permanently. She does not need this money to cover expenses so this is probably not desired.