Absolute Retirement Solutions

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What Happens to an Annuity when the Owner Dies?

Annuities have many benefits for retirees, the most important being that they are capable of providing a reliable source of outcome that can’t be outlived. When considering whether or not to purchase an annuity, many are concerned with what will happen to their annuity when they die. They want to ensure that the wealth they’ve built will not only last for their lifetime, but also benefit their loved ones after they die.

With some annuity contracts, the remaining money will be kept by the insurance company after the owner dies. However, annuities can include a death benefit provision, which designates one or more beneficiaries to receive the remaining payments.

Beneficiaries are typically allowed to choose from these 3 common payout options:

  • Lump-sum payment
  • Ongoing payments based on life expectancy
  • Ability to withdraw funds periodically over a 5-year span

If the beneficiary of your annuity is your spouse, they may have the option to inherit the annuity as the new owner and start receiving the payments. This is called “spousal continuation”.

For annuities purchased with pre-tax dollars, beneficiaries must pay income tax on the difference between the principal that the annuitant paid into the annuity and its worth at the time of the annuitant’s death. Much like owners, beneficiaries do not owe taxes on their inherited annuities until the money is withdrawn. That means they have to pay any taxes due on the money immediately if they choose to take it as a lump sum.

If you want to avoid letting your annuity provider keep the remainder of your money when you die, it’s important to get an annuity with a death-benefit provision. Speak to the professionals at Absolute Retirement Solutions to learn more about how you can personalize your annuity contract to meet your needs and financial goals. Contact us today to request more information and schedule an appointment.

Annuity guarantees are backed by the financial strength and claims-paying ability of the issuing company.