HOW TO KEEP INHERITED RETIREMENT SAVINGS
TAX DEFERRED FOR DECADES
All retirement accounts, including IRA's ask you to name a beneficiary.
The IRS has rules for beneficiaries of inherited retirement accounts based on when the account holder dies. Age at death affects tax deferral of inherited plans as follows:
*  Death Before Age 70 ½: Loses Tax Deferred 5 years after death.
*  Death After Age 70 ½: Loses Tax Deferred 1 year after death.
With a little planning the beneficiary can extend the tax deferral for decades.
The account holder would have had to name the beneficiary as primary beneficiary and this will provide an exception to the 5 year rule.
If the account holder had a living trust, the living trust could be named a contingent beneficiary and the primary beneficiary is allowed to inherit the gain tax deferral for decades. If trust management of the inherited IRA is needed, special provisions are needed to allow a trust to be a primary beneficiary and use the life expectancy of the person inside the trust.
The primary beneficiary would have to start taking minimum distributions by Dec. 31st of the year following the death of the account holder in order to extend the tax referral. If the primary beneficiary fails to take the distribution by Dec 31st, the 5 year rule applies.
VARIABLE ANNUITIES
Variables offer virtually the same investment choices as mutual funds with the tax-deferred growth of an IRA or a 401 (k) but with almost  no limits on how much you can invest. Annuities also let you move money from one investment option to another without triggering taxes. Plus, you can convert your account balance into an income stream that you can't outlive. No wonder variables are attracting record numbers of investors. Sales could top $118 billion for 2000, a near 30% annual increase from 1999, making variable annuities one of the fastest-growing investments around.
INVESTMENT CHOICES -TAX DEFERRAL
Variable annuities typically allow you to invest in anywhere from 5 to 35 stock or bond portfolios, or sub-accounts, as they're known in the annuity world. These sub-accounts are essentially the same as mutual funds with one big differences: Sub-accounts' gains are sheltered from taxes until you withdraw money from your account. The same goes for trading profits. So you can exchange between funds, say a large-cap growth portfolio to a small-cap value sub-account to an international portfolio, all you want without paying tax on profits until you withdraw your money.
PROFESSIONAL PORTFOLIO MANAGERS
You'll find that variable sub-accounts are often run by well-known fund companies or even star portfolio managers.
DEATH BENEFIT
Variables also come with some insurance features, such as a death benefit. In its basic form, the death benefit guarantees that when you die your beneficiary will receive the higher of the market value of your account or the amount you invested. Many insurers have a fancier version of this feature called an "enhanced death benefit," which, subject to certain limitations, assures that your beneficiary won't receive less than the value of your investment increased by a s specified percentage each year.
LIFE-TIME INCOME
Annuities can provide an income you will not outlive. Every variable annuity gives you the right to annuitze, which is insurance jargon for converting your annuity's value into a stream of income, typically paid each month. By choosing a life annuity when you're ready to start withdrawing funds from your account, you can receive monthly payments for life. If you want an income that will last as long as you and a beneficiary, such as a spouse, are alive, you opt for a joint-and-survivor annuity.
VARIABLE ANNUITIES INSIDE IRAs
Variable annuities may also be a good investment inside an IRA and here's why. First, by using a variable annuity you have the advantage of deciding which investments you want, selecting from one or all of the available fund choices, e.g., Large Cap, Mid Cap, Small Cap, Equity Index, Emerging Markets, International Bond, etc. Don't forget, the portfolios are managed by professional fund managers.
Second, you and/or your financial advisor will have access to sophisticated asset allocation software. By strategically diversifying your assets, you help offset declines in any one particular class, and smooth out the ups and downs of your portfolio.
Finally, it may help reduce your IRA fees. Most self-directed IRA custodians charge a fee (commonly referred as an Asset Holding Fee) for each investment inside your account. This covers their cost for posting transactions, updating daily valuations, etc. Let's say you have 5 mutual fund investments, you would be charged for each individual investment. However, a variable annuity is treated as one asset, even though your funds may be allocated among several different investment options.
CONCLUSION
Variable Annuities offer a unique blend of options, unlike any other investment. They offer: a variety of investment choices; tax deferral; professional portfolio managers; guaranteed death benefit to protect your beneficiaries from any down side market risk; and an optional lifetime income option.