Taxes & Insurance

Annuities are popular investments because the earnings are tax-deferred until money is withdrawn. However, if you die with the annuity, your heirs will have to face the tax consequences.

Income from an inherited annuity contract is fully-taxed as ordinary income, not as low-taxed long-term capital gains. There is no step-up in cost basis as there is with stocks, bonds, and mutual funds. Therefore, check into these details before you invest:

  • Will the beneficiaries have the ability to rollover to a new tax-deferred annuity or continue the deferral in some other way?

  • Will the beneficiaries be able to get a lump-sum from the insurance company if the money is needed or will they be forced to take periodic payments?

Annuities vary but if you shop around, you