When considering an annuity, an important question is: What happens to the money if the owner dies?
The answer depends on the type of annuity, the contract provisions, whether income payments have begun, and how beneficiaries are designated.
Understanding these details before purchasing an annuity can help ensure the contract aligns with both your retirement income goals and your wishes for the people you care about.
Many annuities allow the owner to name one or more beneficiaries who may receive a death benefit when the owner dies.
Exactly what a beneficiary receives depends on the annuity contract. Depending on the product and its provisions, the benefit may be based on the contract value, premiums paid, or another amount defined by the contract.
This is one reason it's important to understand the specific terms of an annuity rather than assuming all annuities work the same way.
If you've already begun receiving income from an annuity, what happens after death can depend on the payout option you selected.
Some income options are designed to provide payments for one person's lifetime. Others may continue payments to a spouse or another individual, or guarantee payments for a specified period.
The income option selected can affect both the amount of income received during retirement and what may remain for beneficiaries.
Beneficiary designations are an important part of an annuity contract.
When reviewing an annuity, consider:
Life changes such as marriage, divorce, births, or deaths may also be a good reason to review beneficiary designations.
There can be tax considerations when someone inherits an annuity.
The tax treatment may depend on several factors, including how the annuity was funded, the relationship of the beneficiary to the owner, and how the beneficiary chooses or is required to receive the proceeds.
Because individual circumstances can vary, beneficiaries may want to consult a qualified tax professional regarding their particular situation.
What happens after the owner dies depends on the specific annuity contract. Some contracts may provide a death benefit to beneficiaries, while others may continue payments based on the income option selected.
The key is knowing how your particular annuity works and making sure your beneficiary designations and contract choices reflect your wishes.
At CDA of America, we help individuals and families understand annuity options, retirement income strategies, and considerations that may affect the legacy they leave behind.
Have questions about annuities or legacy planning?
Contact CDA of America to learn more and discuss your individual situation.