What Happens When You Inherit an Annuity?
Inheriting an annuity can provide financial support—but it also comes with important decisions and tax implications. Whether you’re a spouse, child, or another beneficiary, understanding your options is key to making smart financial choices.
### ✅ What Is an Inherited Annuity?
An inherited annuity is a **contract passed to a beneficiary** after the original owner dies. It may continue to pay out income or be liquidated as a lump sum, depending on the annuity type and the beneficiary’s status.
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### 👪 Who Can Inherit an Annuity?
* **Spouse**
* **Adult child or other non-spouse**
* **Trust or estate**
Each type of beneficiary is treated differently by the IRS.
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### 📜 Spousal Inheritance of Annuities
Spouses have the **most flexible options**, including:
* **Continue the annuity contract** as the new owner
* **Roll the annuity into their own IRA** if it’s a qualified annuity
* **Delay Required Minimum Distributions (RMDs)** until age 73
This allows for **tax-deferred growth** and potentially lower taxes.
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### 👤 Non-Spouse Beneficiaries
If you’re a **child or non-spouse**, you typically must:
* **Withdraw the full annuity within 10 years** (per the SECURE Act)
* Choose from options like:
* Lump-sum payout (may trigger higher taxes)
* Periodic payments over 10 years
* Annuitized income stream (if contract allows)
Important: Taxes are owed on the **gains**, not the original investment (known as the “basis”).
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### 💰 Are Inherited Annuities Taxed?
Yes—**inherited annuities are subject to income tax** on the earnings portion. However:
* **No early withdrawal penalty** (10%) applies, regardless of your age
* **Spouses** can often defer taxes longer than non-spouses
* **Trust-owned annuities** may have different rules—speak with a fiduciary advisor
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### 🧠 Pro Tip
Before taking any action, review:
* The annuity contract’s terms
* IRS rules for your beneficiary type
* Options that minimize taxes
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### 🤝 Let Mintco Financial Help You Navigate Inherited Annuities
Every annuity and situation are different. The wrong move could cost you thousands in unnecessary taxes. The right move can help preserve income for your future.
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### 💬 Talk with a Fiduciary—From Anywhere in the U.S.
