Why Would You Take 20 Percent From An Inherited Annuity?

Shawn Plummer

CEO, The Annuity Expert

Inheritance can often bring complex financial considerations. One such issue could be whether or not to withdraw a certain amount from an inherited annuity. This guide explores why you might consider taking 20 percent from an inherited annuity, providing practical examples and understandable explanations.

Confused About Annuities?

Are you new to annuities and unsure where to begin? Visit our Annuity Learning Lab for expert guidance and insights.

Understanding Annuities

Annuities are financial products that provide a steady income stream, typically utilized for retirement. They are often purchased from insurance companies, who, in turn, make regular payments to the annuity holder over a specified time period. In addition, the annuity can pass on to a designated beneficiary in the event of the holder’s death.

Example: Suppose you’ve just inherited an annuity from your late aunt, which pays out $5,000 annually.

20 Percent From An Inherited Annuity

Reasons to Take 20 Percent

The reasons for taking 20 percent from an inherited annuity can vary greatly, but let’s look at three common motivations:

Financial Needs

An immediate financial need can be a reason to withdraw a portion of the inherited annuity. But, on the other hand, the 20 percent could cover unexpected expenses such as medical bills or debt repayments.

Example: Continuing our example, if you have a sudden $10,000 hospital bill, you could withdraw two years’ worth of payouts at once to cover this cost.

Investment Opportunities

If you have a potentially profitable investment opportunity, you might consider taking 20 percent from your annuity to finance it.

Example: You might have the chance to invest in a promising start-up. In this case, the potential returns could justify withdrawing a part of your annuity.

Tax Considerations

Annuities are subject to income tax upon withdrawal. Spreading out withdrawals can help manage the tax impact, but there might be situations where taking a larger amount makes sense. Always consult with a tax professional before making these decisions.

Example: In a year when you’ve had a lower income, it might be advantageous to withdraw more from your annuity as your overall tax rate may be lower.

20 Percent From Inherited Annuities

Weighing the Pros and Cons

Remember, each person’s financial situation and objectives are unique. Therefore, evaluating the advantages and potential drawbacks of withdrawing 20 percent from an inherited annuity is critical.

Example: While our initial example involved covering an urgent hospital bill, it’s also essential to consider the longer-term impacts on your income stream.

20 Percent Inherited Annuities

Next Steps

Deciding whether to take 20 percent from an inherited annuity is a complex decision that depends on your financial situation and needs. For example, it could help meet immediate financial obligations, finance investment opportunities, or manage tax considerations. However, such decisions should always involve careful consideration and professional financial advice.

Your inheritance is a pivotal part of your financial future. Use it wisely, and it can provide both immediate benefits and long-term stability.

20 Percent Inherited Annuity

Request A Quote

Get help from a licensed financial professional. This service is free of charge.

Contact Us

Frequently Asked Questions

Can I defer taxes on an inherited annuity?

Yes, you can, in some cases. Depending on the annuity, you may be able to roll over the money into an inherited IRA or other account and defer taxes until withdrawals are made. However, consulting with a tax professional before making these decisions is important.

What is the tax basis of an inherited annuity?

The beneficiary of inherited annuities must pay taxes as they are taxable. The tax rate applicable on an inherited annuity is the same as your regular income tax rate. The taxes become due when you withdraw money from the annuity

Are annuities subject to probate?

No matter what kind of annuity you have, your beneficiary will receive the death benefit without going through probate. The insurance company will transfer the assets to your beneficiary after receiving a certified death certificate and completing the necessary paperwork.

what is the best thing to do with an inherited annuity?

The best action for an inherited annuity depends on individual financial situations, but options include cashing out, continuing the annuity, or rolling it into an inherited IRA. Consult a financial advisor for tailored advice.

Shawn Plummer

CEO, The Annuity Expert

I’m a licensed financial professional focusing on annuities and insurance for more than a decade. My former role was training financial advisors, including for a Fortune Global 500 insurance company. I’ve been featured in Time Magazine, Yahoo! Finance, MSN, SmartAsset, Entrepreneur, Bloomberg, The Simple Dollar, U.S. News and World Report, and Women’s Health Magazine.

The Annuity Expert is an online insurance agency servicing consumers across the United States. My goal is to help you take the guesswork out of retirement planning or find the best insurance coverage at the cheapest rates for you. 

Scroll to Top