A Stretched-Out Legacy Benefit to Your Retirement Annuity

Have a deferred retirement annuity you might not get to use? You can pass its tax-deferred earnings advantage to your annuity beneficiary and supply her income over much of her life.   A non-qualified annuity is one you funded with after tax dollars. You can provide your assigned annuity beneficiary – after you die – with a lifetime income stream from it. Its holdings can be “stretched out” over the beneficiaries’ lifetime, creating what’s known as a non-qualified stretch annuity.   The ability to stretch out distributions to a beneficiary comes from IRC section 72(s) which requires non-lump-sum annuity distributions to begin within one year of the annuity owner’s death. But the option to stretch out this distribution must be elected within 60 days of after the benefit is payable. So this rule preserves the non-qualified annuity’s tax-deferral advantage for the beneficiary and allows him to avoid a high taxation rate that an all-at-once payout would produce. How long can your beneficiary stretch annuity payments? He can either have payments made to him over the IRS’ projected remaining life expectancy for his age or simply have the payments annuitized under one of the insurance company’s annuitization options. These options would be [...]

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