Key facts
- Two sons are set to inherit a $30,000 annuity.
- Beneficiaries generally have five years to withdraw funds from an inherited annuity.
- Withdrawal options include a lump-sum payout or spreading distributions over time.
- Tax implications apply to the earnings portion of inherited annuities.
- Spouses and certain other beneficiaries may have additional withdrawal options.
A parent is seeking advice on managing a $30,000 annuity that their two sons are set to inherit. The understanding is that the sons have five years to withdraw the funds. Annuities are financial contracts designed to provide income, often in retirement, and when an annuity owner dies, the remaining value is paid to the beneficiary. The settlement amount depends on whether the annuity was in the accumulation or distribution stage at the time of the owner's death. If the annuity was still growing, beneficiaries may opt for a lump-sum withdrawal or spread distributions over several years. If payments had already started, beneficiaries might receive guaranteed payments or a continuation of those payments. Taxes generally apply to the earnings portion of any payouts received. The IRS also permits beneficiaries to stretch payments over their life expectancy, a choice that may depend on the specific contract and the beneficiary's status. Non-spouse beneficiaries may be required to withdraw the full value within five years if the original owner had not taken required distributions.