Inheriting an Annuity? Here’s a Little-Known Way to Stretch Its Tax Benefits
March 10, 2020 by Ken Nuss
One of the biggest advantages of an annuity, tax deferral, can be lost when anyone other than a spouse inherits an annuity. Then, all deferred taxes on the gains must be paid sooner or later. It’s usually better to pay them later rather than sooner — and there are different ways to do that.
If the beneficiaries take the proceeds as one lump sum or even distributions over a few years, they might get kicked into a higher tax bracket. For an annuity with a large untaxed gain, that could mean that a lot of the money would go to pay state and federal income taxes.
This is a problem only for non-spouse beneficiaries. A surviving spouse can usually just keep the annuity intact and continue to defer taxes.
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