MYGA Fixed Rate Annuities
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2.30%
3 YR 
3.00%
5 YR 
3.10%
7 YR 
3.20%
10 YR

Creating A Master Plan For Your Inherited Annuity

Inherited Annuity

There are many misconceptions concerning Inherited Annuities. Make sure you’re informed enough to avoid making costly mistakes.

Can you cash out an inherited annuity?

If you're the beneficiary of an annuity owner, you have the opportunity with most policies, not all, to cash it out. Even though life insurance companies issue out annuities and life insurance benefits are tax-free, lump-sum annuities are not. So when you get a lump sum death benefit from the annuity you've inherited, you are going to have to pay taxes on that amount. It is what it is, and there's nothing we can do about the IRS, and you can't get around it.

In many cases, with annuities that you inherit, you have opportunities to extend that death benefit. Some annuities will allow you to annuitize it on a death benefit and create a lifetime income stream for you, which would lengthen out that tax liability over your life, and you'd just receive payments.

In these situations, when you inherit any type of annuity, you should always contact your local CPA and a tax lawyer and make sure that you're dotting all the I's and crossing all the T's from a tax standpoint.

Can you roll over an inherited annuity?

Not all annuities are the same. Not all carriers are the same. Not all the rules are the same. Some carriers will allow you to take a five-year payment of that death benefit to stretch out that tax liability. Some will allow you to annuitize that amount over time. Some will allow you to take that full cash death benefit, and then some will allow you to roll over, transfer it to something else, but not all.

Once again, when you inherit the annuity, whether you're the spouse, the kids, or you're the grandkids, I would implore you to make an appointment with a CPA or tax professional and make sure that you're taking care of all of the details from the standpoint of taxes.

So, my advice to contact us at theannuityman.com. You will be working with me on these types of situations and my staff, and we will walk you through all of the options available to you.

Do you have to pay taxes on an inherited annuity?

If you inherit an annuity and want to make a good decision, let us know and book a call.

You do. Life insurance companies issue out annuities, but annuity death benefits are taxable; they’re not tax-free. So you're going to have to pay taxes on an inherited annuity. The good news is, most carriers will give you choices on how to receive that money.

You could receive a lump sum payment, and you're going to pay taxes on that lump sum, or most companies will allow you to take that death benefit over five years. Some companies will also allow you to annuitize, meaning the death benefit turns into an income stream and then stretches out that tax liability over your life expectancy.

The bottom line is that regardless of what you choose, regardless of how you want to take the money, you will have to pay taxes to the IRS. You need to go to your CPA and your tax lawyer to make sure that you're making a good decision because once you make the decision, you can't go back on it. Take your time when deciding on how you want to take that money, how you want to access that death benefit from the inherited annuity contract.

Does an inherited annuity get a step-up in basis?

No, it does not. With stocks, when you die, the step-up basis means there is less of a tax hit on you with a stock or a mutual fund, for example. You're going to have to pay taxes on gains, so don't be so upset about it. Just feel fortunate and pay the taxes because you’re not going to get around it. Just a warning, sometimes these deferred annuities have been growing for a long, long time, the cost basis is shallow, and the tax implication is very high because it's grown. The IRS will not change the rules because they allow that deferred tax growth for so long. Just understand that annuities, unfortunately, do not get a step-up basis at the time of death.

If you inherit an annuity and want to make a good decision, let us know and book a call. We will walk you through all of the available choices and give you some counsel on which one works best based on your specific situation.


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