10 year averaging on inherited annuity
Bill was born prior to 1936 and died in 2023. he had a non-qualified (non IRA) annuity with a current value of $200k and a basis of $80k. His son Jason is sole beneficiary and took a lump sum distribution from the insurance company of $200k. Since Bill was born prior to 1936, does he fall under the old rules allowing him to 10 year income average? To be clear, the annuity is NOT an IRA annuity. Thanks.
Permalink Submitted by PaulC on Tue, 2024-04-02 14:48
The only 10-year income averaging that I’m aware of applies exclusively to lump-sum distributions from qualified plans. One restriction is that the plan participant had to be born before 1936, as you cite is the case here. The beneficiary of that qualifying plan participant can also be eligible, as long as they meet all the rules. However, the restriction applicable here is that a distribution from a non-qualified annuity isn’t eligible since it’s not a qualified plan. Distributions from an IRA would also not be eligible. Presumably the beneficiary in this case had options for other than a lump sum, probably at least the option of a five year distribution.
It looks like the result is he took the money, he’ll have the the taxable income of the full gain over the basis and will owe the tax.