3642 / What is an individual retirement annuity?
To qualify as an individual retirement annuity, as provided by IRC Section 408(b):
(1) The contract must be nontransferable.(2) Contracts issued after November 6, 1978 may not have fixed premiums.
(3) The annual premium on behalf of any individual may not exceed the maximum annual contribution limit for the tax year except in the case of a SIMPLE IRA ( Q 3706) or a simplified employee pension (SEP) ( Q 3701).
(4) Any refund of premium must be applied to the payment of future premiums or the purchase of additional benefits before the close of the calendar year of the refund.
(5) With respect to non-Roth individual retirement annuities, distribution must begin by April 1 of the year after the year in which the owner reaches age 73 (72 for 2020 - 2022 and 70½ prior to 2020) and the period over which distribution may be made is limited.
(6) With respect to both traditional and Roth annuities, required minimum distribution requirements must be met on the owner’s death ( Q 3687).3
(7) Distributions must comply with the incidental death benefit requirements of IRC Section 401(a)(9) ( Q 3686).4
(8) The interest of the owner must be nonforfeitable.
A contract will be considered transferable if it can be used as security for any loan other than a loan from the issuer in an amount not greater than the cash value of the contract. Even so, a policy loan would cause the contract to cease to be an individual retirement annuity or endowment contract as of the first day of the owner’s tax year in which the loan was made ( Q 3649).5
The Eighth Circuit has held that a premium was not fixed when a lump sum was rolled from an IRA into an individual retirement annuity because funds taken from an IRA did not constitute a premium if used to pay for an individual retirement annuity.6