What is the tax amount of a inherited annuity

What will I get taxed on an inherited annuity lump sum payment if I am a non spouse. Benefit is around 60000. I am married with 3 dependents.

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  1. 29 Answers

    If you inherit an annuity and you aren’t the annuitant’s spouse, when you have to pay taxes depends on how you decide to receive distributions from the annuity. There are four ways to take money from an inherited annuity:

    1) Lump sum: You could opt to take any money remaining in an inherited annuity in one lump sum. You’d have to pay any taxes due on the benefits at the time you receive them.
    2) Five-year rule: The five-year rule lets you spread out payments from an inherited annuity over five years, paying taxes on distributions as you go. The only caveat is that the entire annuity benefit has to be distributed by the fifth year.
    3) Non-qualified stretch: You take the remainder of the contract and stretch annuity payments out over the rest of your life. Your life expectancy sets the basis for your actual payment amount and schedule.
    4) Periodic or annuitized method: You get payments for the remainder of your life, but the payment amount is not based on your life expectancy.

    If you, as the non-spouse beneficiary, choose a lump sum payout option of the $60k, you will owe taxes on the interest earned on the original premium. You will not have to pay income tax on the premium. If you can get the interest earned on the original premium, along with the tax rate for the tax bracket you fall in as Married Filing Jointly (with dependents) you can calculate the tax due on the annuity.

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