1. 63333 POINTS
    Peggy Mace, Certified Senior Advisor (CSA)®PRO
    CEO, Outlook Life, Inc, Most of the U.S.
    Generally speaking, if the annuity is nonqualified, the beneficiary of an annuity will pay taxes on the earnings. The basis, or monetary contribution that purchased the annuity, is not taxed. How the beneficiary is taxed depends on whether they receive the annuity in a lump sum or whether they annuitize it (take periodic payments).

    If the annuity was tax qualified when purchased, taxes are paid on both the basis (original contribution) and the earnings.
    Answered on August 27, 2014
  2. 37376 POINTS
    David G. Pipes, CLU®, RICP®PRO
    Business Development Officer, T.D. McNeil Insurance Services, Fresno, California
    A non-qualified annuity has a tax liability when the funds are paid out.  That applies to the annuitant or to the beneficiary.  If the annuity is used in an IRA, the entire proceeds are taxed as ordinary income.  If the annuity is used in a Roth IRA, the entire proceeds are received free of income tax.
    Answered on August 27, 2014
  3. 1554 POINTS
    Marcy TookerPRO
    Life & Health Insurance Agent, The Tooker Agency, Riverhead NY
    If you have had a non-qualified annuity for any length of time you most like have accumulated tax deferred earnings. This means that the growth in the annuity account value has not yet been taxed. When you die and the annuity proceeds are paid, the tax deferred earnings will be taxed as ordinary income to your beneficiary.

    There is a spousal provision whereby if the beneficiary is your spouse they will have the option to continue to defer the taxes in the annuity. When your spouse dies, any deferred earnings still held by the annuity will now be taxable to your spouses beneficiary.
    Answered on May 15, 2015
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