What to do when you inherit an annuity
Our licensed annuity specialists can help you understand your rights as a beneficiary and explain your options.
How much money will you inherit?
Choosing the right option
If the annuity owner died, you may have several options to receive your inherited annuity proceeds depending on the terms of the annuity contract, your relationship to the person who died, and when the owner died.
Note: Rules and available contract options differ for contracts issued before January 19, 1985.
Take your share of the death benefit in 1 payment. This choice may increase your short-term tax liability.
Take annual distributions over your lifetime. This choice limits your short-term tax liability and gives the assets in the annuity more time to grow.
And if you need to withdraw more than your annual distribution in any year, there's no penalty to access your funds.
As a surviving spouse, you can take ownership of the annuity, including any riders and death benefits within 1 year of your spouse's death.
Take up to 5 years from the owner's death to withdraw your inheritance.
Convert your assets into income payments on a frequency you choose. This decision is irrevocable, and payments must begin within 1 year of the owner's death.
Go in-depth ... Read our brochure to learn more about your options.
Understanding tax consequences
A distribution from an annuity as a result of death is considered a taxable withdrawal.
- Withdrawals of earnings are taxed as ordinary income in the year you receive them.
- You can ask for federal and any state income taxes to be withheld.
- Withdrawals of after-tax contributions aren't subject to ordinary income tax.
- Annuity assets can continue accumulating tax-deferred if you stretch payments.
- You'll receive IRS Form 1099-R for your taxable distributions.
Help your heirs avoid tax pitfalls
If you plan to leave your annuity to someone who can benefit from structured payments, consider the Vanguard Variable Annuity with the stretch option (See Stretch distribution above).
Did you inherit an annuity from another company?
Keep more of your returns at Vanguard
By choosing a low-cost Vanguard Variable Annuity, you can get the most from your inheritance.* Our average annual expense ratio of 0.48% is 70% less than the industry average of 2.24%—a potential savings of $1,700 a year for every $100,000 you invest.§
How annuities work at Vanguard
If you've inherited an annuity, we're here to help you through the process and assist you in completing the necessary paperwork.
Call 800-523-0788 to speak to an unbiased Vanguard annuity specialist who doesn't work for commissions.
Do you have an annuity somewhere else?
If you have a variable annuity with another company, you may be able to save money by moving it to Vanguard. The Vanguard Variable Annuity costs 70% less than the industry average.§
Managing your Vanguard Variable Annuity
There's a lot you can do online to manage your Vanguard Variable Annuity.
Our licensed annuity specialists are here to help.
Monday through Friday
8 a.m. to 8 p.m., Eastern time
Talk with an annuity specialist
INVEST IN THE VANGUARD VARIABLE ANNUITY
Choose from a diverse lineup of stock, bond, and money market portfolios.
A type of investment account that can be used to save for retirement or to generate regular income payments in retirement. An annuity is an insurance contract, and the issuing insurance company provides some type of guarantee on your investment.
The person or legal entity that applies for an buys an annuity contract. This party owns the annuity and paid for the policy.
Generally, the person who receives income payments from the annuity. The annuitant's age is used to calculate the maximum annual withdrawal amount.
An amount equal to the initial purchase amount plus any additional premium payments received—less applicable fees, partial withdrawals, and premium taxes. The value also takes into account any changes in the value of the selected investments.
An investment option—offered by an annuity—that holds a range of underlying investments.
The money you have invested in the major asset classes—stocks, bonds, and short-term or "cash" investments.
A provision added to an insurance contract that offers more benefits at an extra cost.
Delaying the payment of income taxes on income. For example, owners of traditional IRAs do not pay income taxes on the interest, dividends, or capital gains accumulating in their retirement accounts until they begin making withdrawals.
The annual operating expenses of a mutual fund or an ETF (exchange-traded fund), expressed as a percentage of the fund's average net assets. It's calculated annually and removed from the fund's earnings before they're distributed to investors, directly reducing investors' returns. For example, if you had $10,000 invested in a fund with an expense ratio of 0.20%, you’d pay about $20 a year out of your investment returns.
The profit you get from investing money. Over time, this profit is based mainly on the amount of risk associated with the investment. So, for example, less-risky investments like certificates of deposit (CDs) or savings accounts generally earn a low rate of return, and higher-risk investments like stocks generally earn a higher rate of return.
Mainly wages, salaries, commissions, and interest income from bonds, which is taxable using ordinary income rates.
Investments in a retirement plan that come from the taxable portion of an employee's pay.
A fee charged by a broker for buying and selling securities.
A contract issued by an insurance company, which agrees to make payments to you based on the contract's value. The value varies based on the annuity's underlying investments.
To access your annuity online, log on to your account or register for online access if you haven't done so already.
Once you've registered, you can make exchanges between annuity portfolios online.
You can also log on to check the following:
- Your contract balances.
- The status of pending and processed transactions.
- Information on death benefit and Guaranteed Lifetime Withdrawal Benefit riders.*
- Statements and confirmations.
If you have any questions about your annuity, call one of our licensed specialists at 800-357-4720 Monday through Friday from 8 a.m. to 8 p.m., Eastern time. We're always happy to help.
footnote*Product guarantees are subject to the claims-paying ability of the issuing insurance company.