Generally, the death of the holder (owner) of a non-qualified annuity terminates the contract and required distributions from the contract must commence under the rules of IRC Section 72(s). An exception is the option for a spouse beneficiary to continue the contract as his/her own under IRC Section 72(s)(3).

What is the five-year rule for an inherited annuity?

The default is the five-year rule. Under it, the beneficiary or beneficiaries have five years to take out the proceeds of the annuity. They can take them out gradually or in a single lump sum anytime up until the fifth anniversary of the owner’s death.

What are the tax rules for inheriting an annuity?

Tax Rules for Inheriting an Annuity Like any other type of income, inherited annuities are taxable. The timing of the tax event depends on the payout structure and your status as a beneficiary.

Can a non spouse receive an inherited annuity?

This strategy primarily involves a non-spouse inherited annuity and this inherited annuity stretch option allows you to receive RMDs (Required Minimum Distributions) based on your life expectancy. You can transfer the inherited annuity to another annuity if it is more beneficial for your specific situation.

Can a beneficiary of an annuity be a surviving spouse?

If an annuity contract has a death-benefit provision, the owner can designate a beneficiary to inherit the remaining annuity payments after death. Earnings on inherited annuities are taxable. How they’re taxed depends on the annuity’s payout structure and whether the beneficiary is the surviving spouse or someone other than the spouse.

Can a beneficiary of an inherited annuity change their name?

Inherited annuities are taxable as income. The beneficiary of a tax-deferred annuity may choose from several payout options, which will determine how the income benefit will be taxed. If the beneficiary is the spouse of the annuitant, the spouse can change the contract into his or her own name.