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 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.

What kind of annuity is an inherited IRA?

An inherited IRA is an account that is opened when an individual inherits an IRA or employer-sponsored retirement plan after the original owner dies. A deferred annuity is a type of annuity contract that delays income, installment or lump-sum payments until the investor elects to receive them.

What are the distribution options for an inherited annuity?

They are sometimes used by retirees to secure a reliable income in retirement. Some annuities payments can be left to a beneficiary after death if money remains. Distribution options will vary depending on if you are the surviving spouse or someone other than the surviving spouse.

How does the nonqualified stretch work for inherited annuities?

Nonqualified Stretch – The nonqualified stretch, or the life expectancy method, is a distribution option that can help beneficiaries maximize the most benefits from an inherited annuity. The nonqualified stretch allows for the beneficiary to receive the minimum annuity distribution through yearly payments based on their life expectancy.

Who is the beneficiary of a variable annuity when the owner dies?

For most variable annuities, beneficiaries receive at least the original amount the owner contributed. For fixed annuities, the beneficiary receives the present value of payments. For some immediate annuities, such as a lifetime immediate income annuity without term certain, the insurance company keeps the money when the owner dies.