Inherited (Non-qualified) Annuity by NON-Spouse

[nwtaxlady]

I have a client that just found out that she is inheriting her Aunts Non-qualified Annuity. It is thru say State Farm and they are no help to her.

Question is, what are her options? Does she have to take it all out?

Then is the original basis become her basis so that only the interest portion is taxable?

Or is it all going to be taxable to her?

Thanks!!

[TAXNJ]

A start

Here is something to start with (non all inclusive - you need to check the IRS code):

[BOB W]

Something I noticed in the reading, that there is no step-up in basis with a non-qualified annuity contract. Seems to be an exception when it come to investments. Also with qualified plans...no step-up, which I knew.

[Burke]

That is correct. No step-up to FMV, but the original basis (upon which the deceased had already paid tax) remains her basis. The earnings will be taxable to her. The custodial institution will withhold tax at the time of payment. It is taxable upon distribution. It can get confusing, because "annuity" describes the product. IRA describes the type of account. The deceased owner may have designated this person as a beneficiary. She may have payment options. I don't accept that State Farm "is of no help." If they issued the contract, they or their agent should know all about the policy and the options for distribution. She needs to contact the company and talk to someone who knows what they are talking about. They should send her forms to complete to make claim for the proceeds.