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Will I be req. to pay fed/state taxes on inherited deferred annuity $ & @ what %? Live in AZ & will receive in a lump sum. Money will be coded inherited distribution.

Forum|Forum|6 years ago
June 1, 2019
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Best answer by dmertz

Annuities do not receive a step-up in basis upon the death of the owner. Distributions from the deferred annuity to the beneficiary will be taxable as ordinary income to the same extent that they would have been taxable if they had been distributed to the owner. With a lump-sum distribution, the taxable amount will be the amount distributed that is in excess of the amount of premiums paid into the deferred annuity.

D

dmertzAnswer

Annuities do not receive a step-up in basis upon the death of the owner. Distributions from the deferred annuity to the beneficiary will be taxable as ordinary income to the same extent that they would have been taxable if they had been distributed to the owner. With a lump-sum distribution, the taxable amount will be the amount distributed that is in excess of the amount of premiums paid into the deferred annuity.

Critter

The code 4 for the inheritance will keep you from paying an early withdrawal penalty however you still need to pay the federal & state taxes on the profits. Ask the payer for the amount that will be taxable so you can compute how much you need withheld to cover the taxes.