Are annuity distributions to beneficiaries taxable?

Annuity Beneficiaries: Death Benefits & Payout Options. If an annuity contract has a death-benefit provision, the owner can designate a beneficiary to inherit the remaining annuity payments after death. The earnings on an inherited annuity are taxable.

What is an annuity distribution?

With an annuity, you pay the annuity company premiums for a period of time, and then the annuity company starts paying you. During the distribution phase, you’ll receive monthly, quarterly or annual payments according to the terms of the annuity contract.

When do I have to take distributions from a nonqualified annuity?

Similar to an IRA, requirements specify how and when beneficiaries of a nonqualified annuity must take distributions. If the annuitant had begun taking periodic distributions before her death, the beneficiary must continue the payment option chosen by the annuitant.

How are distributions taxed during the annuityization phase?

There is an aggregation rule which requires that all annuity contracts issued by the same company, to the same owner, in the same calendar year must be treated as one annuity contract for purposes of determining the taxable portion of any distributions. How are distributions taxed during the annuitization phase?

When do I have to pay taxes on an inherited annuity?

If payment had not begun, a non-spouse beneficiary has three choices: a lump-sum distribution within one year of the annuitant’s death, full distribution within five years of the annuitant’s death or periodic distributions based on the life expectancy of the beneficiary.

How is the value of an annuity determined when the beneficiary dies?

The contract value is determined by the day the insurance company receives proof of the annuitant’s death or when the beneficiary files a claim. For some variable annuities, this benefit can decrease in value. For example, a beneficiary might report the annuitant’s death on a date when stocks are underperforming.