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Level 2
posted Oct 25, 2023 9:30:52 AM

Inheritance of annuity

I am inheriting an annuity from my mother.  The balance should be about $30,000. I cannot seem to find any clear answers on how this will be taxed and what my options are for receiving it (i.e. lump some or payouts). Can you provide any clarity or direction?  Thank you.

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1 Replies
Employee Tax Expert
Oct 25, 2023 11:16:38 AM

Hello TaxQuestions60!

Thank you for joining our event today!

According to the Annuity Expert Advise Website, you do have some options.

Here are 4 options on receiving your Annuity inheritance-

 

  • Lump-Sum Distribution:  Beneficiary gets the remaining annuity's value in one payment, a lump-sum
  • Nonqualified-Stretch Provision:  Allows beneficiaries the payments they are entitled to based on their life expectancy.
  • Five-Year Rule:  The beneficiary has five years to take out the proceeds.  It can be taken out gradually or in a single lump-sum anytime, as long as they withdraw the death benefits within five years of the annuitant's death.
  • Spousal Continuance:  Spouses can be the new owner and annuitant of the deceased's annuity and continue the contract.

The taxability of the annuity is determined if the annuity is qualified or non-qualified.

 

  • Qualified annuities will require those who inherit them to pay taxes on all withdrawals and if applicable, take a Required Minimum distribution (RMD's), and is taxed at the inheritor's regular tax rate.
  • Non Qualified annuities are only taxes on the earnings and are not required to take RMD's.

See this article for more information.