Stretch IRA – A Triumphant Return!

“Hello Boy’s, I’m Back!” – Russel Case “Independence Day”

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The annuity Gods once again smiled upon us when the IRS in a stunning “clarification” 02.24.2022 stated; The Secure Act’s (01.01.2020) 10 – year distribution rule does NOT apply to certain annuity contracts (single premium immediate annuity – SPIA) and defined benefit pension plans.

Required Minimum Distributions (RMDs) from “defined benefit” plans and certain annuities are now covered separately by section 1.401(a)(9)-6 and have their own unique RMD rules. Annuities (to be clear, periodic payment, annuitized) meeting certain parameters of; Joint & Survivor life, single life with or without a period certain, period certain only, COLAs and others such features will continue to be RMD compliant for Owners and also their Survivors/Beneficiaries (to be clear, any Survivors/Beneficiaries) as long as the annuity otherwise qualifies under the “minimum distribution incidental benefit” (MDIB) rules for “defined benefit plans and certain annuities”.

And that means …..

Stretch IRAs are Back!

And not only are Stretches’ and their corresponding Beneficiary treatments back, they are now clearly in the EXCLUSIVE domain of SPIAs and defined benefit pension plans!

But, why is the Stretch IRA so important? The IRS realizes, in the long run, it’s a benefit to society to provide for a life insurance feature (if elected by the consumer) in an IRA or even a qualified retirement plan. For various reasons, not everyone can just go out and buy life insurance. The IRS has always been willing to provide a retirement income tax subsidy for a life insurance benefit as long as the preponderance of the IRA or qualified plan financing retirement can be taxed later. The fact is; the IRS permits and has always permitted life insurance in IRAs! But, the problem is; it’s not the life insurance agents want to sell!

The IRA annuity life insurance benefit is; “pay on Owner death” survivorship income. (At one time there existed regular “standalone” survivorship income life insurance policies but, the life industry withdrew these policies many years ago) The same feature offered by defined benefit retirement pension plans. Now that Secure Act death benefit (actually I prefer the term “family benefit”) ambiguity is behind us, we can once again and in good faith, continue to offer a stretch IRA feature to any and all Spouses, ex-spouses, siblings and children, people, who would normally stand to benefit from any other life insurance arrangement. 

Since quite a few years have passed, let’s re-hash the IRS RMD rules regarding qualified SPIAs issued as “IRA stretches” for immediate annuities but this also goes for their sister defined benefit pension plans as well.

The IRS permits Joint and Survivor lifetime income IRA annuity contracts with “spousal” and also “non-spousal” individuals. 

Spousal Survivor

For spousal survivors (regardless of the age difference), the IRA Owner may elect up to a 100% Survivor lifetime income spousal benefit.  (This rule is also applicable to any survivor within 10 years of the Owner’s age). If the spousal age difference is more than 10 years and they later, divorce (post annuity issue), the IRS will accept court orders conferring spousal survivorship lifetime income rights to the now former spouse. In the case of an IRA, it’s Domestic Relations Order (DRO). In the case of a qualified plan, it’s a Qualified Domestic Relations Order (QDRO). This little problem was also cleared up and you can see how the IRS addressed in Section 401(a)(9)(G) of the 02.24.2022 proposed regulations.

Non-Spousal Survivor

But what about non-spouse survivors with age differences of greater then 10 years? In Stretch IRA annuities, these individuals are typical the Owner’s adult kids but could also be others (Perhaps, a secret lover! – Risqué Ha). In these cases, survivor lifetime income has to be “reduced” to reflect the kids’ much younger ages. The IRS (Table 1) used for this purpose contains 28 possible reductions. For Owners age 72 (Secure Act) or older, you merely look at the age difference as of 12/31 in the year of annuity purchase between the IRA Owner and the non-spousal Survivor then, refer to the table. The table will indicate the “maximum” non-spousal survivor’s lifetime income. Example: An Owner age 75 with a 26 year age difference from the non-spousal survivor means the non-spousal Survivor may receive a maximum lifetime income of 64% of the IRA Owner’s IRA annuity or pension income (But it will be paid over a longer period). The IRA Owner is always eligible for 100% of their lifetime annuity or pension income even if the non-spousal survivor predeceases the Owner.

 SPIA Owner less than age 72

There is one possible adjustment (Table 1) if, the Owner is less than age 72 (Secure Act) in the annuity purchase year as of 12/31.  For every year under age 72, Table 1 is adjusted one year diminishing the age difference. For example: If the owner is age 68 and there is a 26 year age difference between the Owner and their non-spousal income Survivor, the age difference is reduced and in this case, the age difference is 22 (26 – 4) years and the non-spousal survivor may receive a maximum lifetime income of 70% of the Owner’s IRA annuity or pension income.

 Period Certain

Let’s take another SPIA pricing component that may or may not be elected, period certain (estate benefit guarantee). IRA Owners may elect lifetime income Survivor SPIAs that also contain period certain durations that don’t exceed the Uniform Lifetime Table (ULT). For example, utilizing the new 2022 tables, IRA Owners’ age 75 as of 12/31 (in the year of annuity purchase) results in a ULT duration of 24.6 years. In this case, the maximum period certain duration is to Owners’ age 99.6.   The SPIA is still RMD compliant even though the survivor lifetime income reduction (if any) doesn’t take place until “following” the end of the period certain. For example; Following the Owner’s death, there remained 15 period certain years to be paid by the IRA annuity contract. Annuity income does not reflect the change to the survivor’s income percentage until the end of the the 15 year period. If the survivor makes it past 15 years then, their survivor income begins for all the following income paid until their demise. Of course, if the Survivor doesn’t also make it to 15 years, the Survivors’ Beneficiary continues to collect the remaining period certain income. So, a possible secondary generational stretch IRA may occur.

Cost of Survival Adjustments aka Cost of Living Adjustments (COLAs)

These benefits (income escalation features) are permitted and may be elected “only” in immediate annuity IRA contracts (defined benefit pensions may also provide for them). But, like all the above, the IRS imposes limits. COLAs may be annually compounding or simple percentage increases. It’s very easy to determine if the COLA initially selected is too large. You merely take the annual income amount and multiply by the years indicated by the “Single Life Table” or the length of the period certain if longer. The “product” of this multiplication is the “the expected benefit” and it has to be equal to or greater than the annuity premium purchase cost. If the expected benefit is lower than the annuity premium purchase cost, the COLA is too large and the COLA has to be “reduced” to make the annual income higher and you have to keep reducing the COLA until this “product” falls in line with the annuity premium purchase cost. Under the RMD regulations, it is IRS permissible for IRA annuity income Survivors or even Beneficiaries of Survivors to collect COLA adjusted annuity incomes. (Note: To maximize an IRA annuity COLA feature it’s optimal to work with carriers that permit whole and fractional annual COLAs. For example; 3.00%, 3.25%, 3.50%, etc.)

 Smack of Reality

Just because you can now calculate the maximum SPIA survivor benefits doesn’t mean you can find insurance companies willing to issue “all” the maximum benefits.  This is where the hunt starts. Many companies are constrained by their own self-imposed contract issue limitations. Other companies give nonsensical reasons and/or might cite some IRS mumbo jumbo as to why they can’t do something when, other carriers are perfectly willing to issue.  You have to remember carriers have not spent a lot of time and resources on supporting the qualified/IRA SPIA business and you might have to work your way up the food chain to obtain the answers you need. (Note: You may have to ask the Home Office for a custom quote not supported by their generic SPIA public platform pricing systems. The Actuarial Department typically produces these quotes)


Not covered in this blog; new IRS SPIA “partial” commutations rules permitting a return of a portion of the annuity premium purchase cost to a cash lump sum while keeping the balance of the IRA annuity in-force and maintaining it’s RMD compliant status. (But I don’t see carriers permitting this. it would be too costly for them to adjust their administration systems too accommodate.)  Brokerage considerations for jumbo premium transactions which are typically; annuity purchase premiums exceeding $1 million.


The Stretch IRA benefit to the Survivor (life insurance) is maximized when all the above features are maximized. Conversely, this survivor lifetime income maximization “greatly minimizes” the current income to the IRA owner and lowers their current income taxation. This is the reason why the IRS regulates all the above features. Survivorship lifetime income maximization creates the largest IRS permissible contract “internal deferral”. Yes, immediate annuity contracts support internal gain deferrals. But, theses gains are not transparent, you don’t see SPIA/pension gain deferrals like you see them in deferred annuity contracts. This is why the IRS has special RMD rules for immediate annuity contracts and defined benefit pension plans. They want to limit the “real” gains that can be deferred and passed to another generation via the survivor income benefit.

 But The quandary

So, you can sit there and figure all this Stretch IRA stuff out for yourself or you can contact an immediate annuity specialist, Fiduciary agent that knows the carriers, can do it in 5 minutes, mentally, on a cell phone, driving down the highway, at 70 MPH, in the Florida rain! Ha. Gee, I wonder where you can find one of those!?

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