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    Taxes & Annuities

    Annuity Beneficiary Tax Rules

    What happens to an annuity when you pass away depends on who inherits it and how — choices that can significantly affect their tax bill.

    Family discussing inheritance documents around a table
    Beneficiary planning protects your loved ones from unnecessary taxes.

    How Annuity Death Benefits Are Taxed

    Annuity death benefits are generally subject to ordinary income tax on any gains. Unlike many investments, annuities do not receive a step-up in basis at death.

    Spousal Beneficiaries

    A surviving spouse can typically continue the contract as their own — preserving tax deferral and choosing how and when to take income.

    Non-Spouse Beneficiaries

    Non-spouse beneficiaries must withdraw the proceeds within IRS-defined timeframes — often a 5-year rule, a life-expectancy stretch (where allowed), or via annuitization.

    SECURE Act Considerations

    The SECURE Act changed many inherited retirement account rules — most non-spouse beneficiaries of qualified annuities must now withdraw fully within 10 years.

    The Bottom Line

    Beneficiary designations and structure choices can have a much larger tax impact than the annuity itself. Review them periodically with a qualified advisor.

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