Inheriting Annuities

[Tobal]

I just have a quick questions about inheriting an annuity. What happens to the cost basis when I inherit an annuity. Lets say if my mom cost basis of her annuity contract is 250k but during her passing the account value is at 350k. Will my cost basis be her original 250k or will the new cost be based on 350k?

Also what will be the tax consequences at death? Will I be taxed for the 350k? or the 100k gain? and how will that be taxed as capital gain? ordinary income?

 

[iceco1d]

If you're the beneficiary, when your Mom passes the insurance company is going to liquidate the account and give you a check for $350K. $250K will be return of principle, $100K will be taxed as ordinary income.

What you do with the money from there, is up to you.

 

[antmarchei]

icecoid is correct. However if you do not like the idea of paying taxes on the 100k all at once, you may be able to stretch those payments out if its an IRA. The downside is you would receive distributions based on your life expectancy (age) . If its a Non Qualified account pay the taxes on your new found money.

 

[arnguy]

Beneficiary of a non-qualified annuity can opt to spread the pament over 5 years to lessen the tax impact. If it's an IRA in an annuity the entire amount including the cost is taxable to the beneficiary inasmuch as before tax money was used to purchase it. Uncle Sam wants his due! An IRA is a tax deferral----it is not a tax free investment. This of course assumes as stated by the OP that the annuity was not annuitized prior to the annuitant's death.

 

[DHK]

If the annuity is a QUALIFIED annuity (traditional IRA)... you can look into the "stretch IRA" concept with an advisor who is qualified and knowledgeable in implementing it. (I used to be, but I haven't touched the concept in a number of years.)

What is the "stretch IRA" concept?