Once I've submitted my beneficiary claim form packet, how long will it take to process?
Upon receipt of the required documents, we will process your claim within 10 business days or within the applicable state requirements.
What is the difference between a tax-qualified and non-qualified annuity contract?
Annuities are classified into two basic types: tax-qualified and non-tax-qualified.
- Tax-qualified annuities, include retirement arrangements such as IRAs, 403(b) contracts or qualified retirement plans. Generally the owner may have received an income tax deduction when the funds were contributed to the contract (IRAs) or the owner had contributions made through pre-tax dollars (such as 403(b)s or qualified retirement plans). Roth IRAs are also considered tax-qualified but are purchased with after-tax dollars.
- With a non-tax-qualified annuity, these funds are not part of a retirement arrangement as described above. Contributions to a non-tax-qualified annuity are made with after-tax dollars which means income taxes were already paid on the money before it was put into the annuity contract by the owner.
What portion of my death benefit is taxable?
If the annuity contract is a tax-qualified annuity, such as an IRA, the entire amount of the death benefit will generally be fully taxable. Different rules apply to Roth IRAs. The death benefit from a Roth IRA may be income tax free if certain requirements are met.
If the annuity contract is a non-tax-qualified annuity, any amount over the owner's cost basis (generally the after-tax contributions that were made by the owner) in the contract is taxable as ordinary income.
The death benefit is generally not taxable to the beneficiary. However, any claim interest paid as part of the death benefit may be taxable.
Are there time limitations for filing a death claim?
Yes, if a claim isn't filed within a certain number of years it is considered unclaimed property and would be sent to the state in accordance with applicable state requirements.
If I want to elect annuitization payments to receive the death benefit, are there any time periods I need to be concerned with?
Yes, the taxation of the death benefit proceeds for annuity payments is affected by the length of time between the date of death and the date the first payment goes out.
- For tax-qualified annuities, your first annuity payment must be issued by December 31 in the year after the death in order to avoid potential tax penalties.
- For non-tax-qualified annuities, your first annuity payment must be made within one year from the date of death.
- If your first non-tax qualified annuity payment is issued after one year from the date of death, the following will occur:
- We will report the entire taxable portion of the death benefit in the year in which the first payment is made. This means that although you will not have full access to the funds in a lump sum, you could have a taxable event.
- You will also need to complete Section 5 tax withholding information if you wish to elect out of federal tax withholding. If you do not elect out of withholding, an amount equal to 10% withholding of the taxable amount for federal income tax (plus any mandatory state income tax if applicable). The amount of income tax withheld will reduce the death benefit value dollar for dollar.
- After the taxable amount is reported to you as income, you will not be taxed on this amount again when annuity payments begin; instead only earnings from the annuity payments will be taxable each year.
If you will receive the first payment outside of these timeframes, contact us to discuss your specific situation.
What are my payout options?
Your death benefit options may differ according to the annuity contract or life insurance policy. Refer to the claim form packet to learn what is available. The death benefit amount that you receive from the contract or policy may also vary based on your death benefit payment option that you elect.
It’s a good idea to contact your financial professional or issuing agent to review and determine the best options for your situation.