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Repost this question on the Tax board for a more complete answer.

Your associate has to worry about leaving too much money inside the IRA (don't forget the $650k estate limit). Plus, depending on when he started withdrawals, his heirs will have to deplete the inherited IRA accordingly.

And the previous posts are right. An annuity in an IRA is a crime. An annuity paid with withdrawn IRA money is a crime, too, as the annuity is taxed as ordinary income. It would be better to put the withdrawn money into a buy & hold stock portfolio, as the stocks would be given a stepped-up basis at your associates death.

There was a solution suggesting that if you were withdrawing money from an IRA that you did not need, that you paid a mortgage with that money. Since most of the mortgage payment would be tax-deductible, you would be getting the house, tax-free.

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