Inherited Annuity: What Are Your Options?
Hey there, Stan The Annuity Man, America's annuity agent, licensed in all 50 states, and that includes yours. Yes, yours; I'm licensed there as well. You can always contact us by booking a call.
What we're talking about today is a pretty interesting subject because many people are getting older. We're living longer. 10,000 baby boomers every single day are reaching retirement age, and a lot of people are calling me because they've inherited an annuity. So, what do you do? What are your options? We will cover that in some of the recent laws that affect inherited annuities and what you need to know so you can make an informed decision on your terms and timeframe.
Let's talk about if you're just a non-spouse and you've inherited an annuity. All annuity companies are different, and these are your basic three options. What I would encourage you to do, in addition to booking a calling with us, is call the carrier; if you have a statement, there's an 800 number on that statement. I would call that carrier, and you're going to get a non-salesperson on the phone, and they're going to walk you through your options, and then send us that statement, and we can help you with what you want to do. But you can either get a lump sum; they'll send you the lump sum on the accumulation value, the real money account of that, or many companies will say, we'll pay you out over five years if you want to lessen the tax blow. That's option number two. And then option number three, not all companies do this, but most will, you can say, turn this into a lifetime income stream, annuitize it, which means to create payments.
So once again, the three options that most, not all, carriers have is a lump sum or take the payment over five years on whatever that death benefit is. Then, the third thing is you can annuitize it and create a lifetime income stream. Once again, call the carrier, send us the statement, the most recent statement, and then get us involved in the process so that we can make sure that you're making the right decision and that we can explain some of the nomenclature and some of the verbiage that's within those choices because you'll get some paperwork that reads pretty legalistic to you. We can help you with that.
Now, what's happened in the last few years from the time of this blog? Look at the date. The Secure Retirement Act was passed, and one of the things that they changed with inherited annuities is back before 2019, you could do what's called a stretch IRA if you were a child or if your father had an annuity and you're the beneficiary, and you're a child, you could stretch that IRA.
What does that mean? You're taking Required Minimum Distributions, RMDs, on your life expectancy, not your dads in this example. With any tax situation, you need to talk to your local CPA or tax lawyer to make sure you're getting all the I's dotted and the T's crossed. Never take tax advice from a non-tax person, even though I've been doing this for 30 years and am the number one agent on the planet. We always get your local tax advisors involved with these types of situations, especially when you're inheriting an annuity. The other thing that you need to understand with inherited annuities is what do you want to do with the money? What is your goal with the money?
What's Your Goals?
Now, the person that originally owned it, they had their goals. You might have different goals, and so we can line you up with that based upon what you're trying to achieve, but don't accept somebody's opinion. You need to The Annuity Man involved or a trusted advisor. You need to call the carrier and get them involved and talk to their people, and then you need to speak to your local CPA or tax lawyer and get them involved so you're making an informed decision because you're inheriting the annuity. You want to make sure you're doing the right thing, and you also want to make sure that you're not triggering taxes that don't need to be triggered, right?
I've also made a video called: What is the objective of an annuity? And I encourage you to watch that video because you have just inherited an annuity. You need to find out what the objectives are, why were they put on the planet, what do they solve for, etc. That video will help.
Another thing you need to understand is that when you inherit an annuity, the majority of carriers will not allow you to transfer that annuity. You need to keep that in mind as well. Once again, I can't say all, but you need to contact us, and we can make sure to work with the carrier, but most will not allow that. Some will, but most won't. It depends on the carrier and who you inherited the annuity from.
And also, two, what type of annuity because you have Single Premium, Immediate Annuities, Deferred Income Annuities, Qualified Longevity Annuity Contracts, Variable Annuities, Fixed Index Annuities, and Multi-Year Guarantee Annuities. Some of those from an income stream standpoint, if you inherited them, you might have inherited the remaining income stream that's left. Still, for Deferred Annuities, like Multi-Year Guarantee Annuities or Indexed Annuities or Variables, that's when it gets tricky from the standpoint of you just making decisions.
Once again, go slow, and don't just take one person's advice; get everybody involved. Get your team involved. Hopefully, The Annuity Man is part of that team so you can make the right decision because your loved one would want you to do that, and they put you down as beneficiary for a reason; they wanted you to be taken care of and make sure that money's going to flow to you.
One more thing about when a spouse inherits an annuity is that the RMDs will be taken over the spouse's life expectancy. Still, there are some occasions in that first year, depending on when they die, and I don't want to get in the weeds here, but understand that there might be that year or timeframe you have to take the RMD based upon the deceased person's life expectancy. I know that sounds crazy, but there are some machinations to it that we can help you with.
We're talking about taxes. The IRS, it's not going to be that simple. I encourage you to book a call with us. You can also get all six of my books, and that's around 500 or 600 pages of information that I've written down for you. You can download it for free by clicking on this link. I do a podcast every other week called Fun With Annuities on all major platforms. Please hit the subscribe button on our YouTube Channel, and I'll see you next time on the following Stan The Annuity Man blog.
Never forget to live in reality, not the dream, with annuities and contractual guarantees! You can use our calculators, get all six of my books for free, and most importantly book a call with me so we can discuss what works best for your specific situation.