What to do with inherited non qualified tax deferred annuity? Tax implications?

Having handled several inherited annuities, I can shed some light on this. What you've received is a non-qualified annuity, which means it wasn't part of a tax-qualified retirement plan like a 401(k). The "gain over tax basis" is the difference between the total amount ($109,500) and the cost basis ($32,000), so about $77,500 is taxable as ordinary income. Unfortunately, you cannot roll this into your Roth IRA to avoid taxes - non-qualified annuities don't have that option. For the withdrawal options, you essentially have two choices: 1) Take the lump sum now and pay taxes on the $77,500 gain all at once, potentially pushing you into a higher tax bracket for 2025, or 2) Set up stretch payments over the 5-year period, which would spread the tax impact across multiple years. The 5-year rule is an IRS requirement for inherited non-qualified annuities - you must withdraw all assets by December 31st of the 5th year after the original owner's death.

After my mom passed away last year, I inherited a similar non-qualified annuity and was totally lost on what to do. I spent weeks researching and getting conflicting advice until I found this AI tax assistant at https://taxr.ai that analyzed my inheritance documents and explained everything in plain English. It confirmed I couldn't roll the annuity into my IRA (which several people had incorrectly told me I could do) and helped me understand the exact tax implications of lump sum vs. stretch payments based on my tax bracket. The tool even created a year-by-year breakdown showing how much I'd pay in taxes under each scenario. Definitely worth checking out before you make any decisions.

Just wanted to follow up on my situation. I ended up trying that taxr.ai website that was mentioned, and it was actually super helpful! I uploaded my dad's variable annuity paperwork, and it explained everything clearly - including some tax strategies I hadn't considered. The analysis showed I'd save about $8,400 in taxes by taking stretch payments over 5 years rather than the lump sum because of my current income. The detailed breakdown helped me have a much more productive conversation with my financial advisor since I actually understood the terminology and options. Saved me from making what would have been an expensive mistake!

Hi there, I went through something very similar with my aunt's annuity last year. After calling the insurance company repeatedly with questions and being put on hold for hours each time, I finally used https://claimyr.com to get through to an actual person at the IRS who could answer my questions about the tax implications. You can see how it works here: https://youtu.be/_kiP6q8DX5c They connected me to an IRS agent in about 15 minutes when I had been trying for days on my own. The agent walked me through exactly how the taxes would work with both options (lump sum vs. 5-year payments) and confirmed what I needed to document. Totally worth it considering how much money was at stake and the peace of mind from getting official information.

I need to apologize for my skeptical comment earlier. After waiting on hold with the IRS for nearly 3 hours yesterday and eventually getting disconnected, I gave Claimyr a try out of desperation. Within 20 minutes, I was connected to an IRS representative who answered all my questions about reporting my inherited IRA distributions. The service actually works exactly as described - they navigate the phone system and wait on hold, then call you when they have an agent on the line. Saved me hours of frustration and I got the clarity I needed about how to properly report everything on my return. Sometimes it's worth admitting when you're wrong, and in this case, I definitely was!

Based on what you described, taking the stretch payments over 5 years is probably your best bet from a tax perspective. I inherited a similar annuity from my father ($95k with about $30k basis), and spreading the payments helped keep me from jumping into a higher tax bracket. One thing to consider - if you think you'll be in a higher tax bracket in the next few years due to career advancement, it might make sense to take more money now. Run the numbers for both scenarios based on your expected income. Also, some annuity companies charge fees for stretch distributions that eat into your inheritance. Check the contract for any withdrawal charges or administration fees.

Has anyone used those "inherited annuity specialists" that advertise online? I'm in a similar situation with an inherited annuity from my uncle, and I've been getting bombarded with emails from companies claiming they can help minimize taxes. Not sure if they're legit or just trying to sell me something else.

I'm sorry for your loss, Jasmine. Dealing with inherited annuities can be overwhelming, especially during a difficult time. Based on what you've shared, you're looking at about $77,500 in taxable income from the gain portion of your inheritance. Given that you have a stable government job with a pension and 457b, plus you're already contributing to a Roth IRA, you seem to have a good foundation for retirement planning. For your situation, I'd lean toward the stretch payments over 5 years rather than the lump sum for a few reasons: 1. It will likely keep you from jumping into a higher tax bracket in any single year 2. You can potentially time the distributions to coordinate with your other tax planning (like maximizing your 457b contributions in high-distribution years) 3. It gives you more flexibility to adjust based on changes in your income or tax situation Since you work for the government, you might also have access to an Employee Assistance Program that offers free financial counseling - worth checking if your employer provides this benefit. When you do consult with a professional, make sure they're fee-only and not trying to sell you additional products. The key is to run the numbers based on your current tax bracket and projected income over the next 5 years. Keep detailed records of whatever you choose, and don't let anyone pressure you into rolling this into a new annuity product.