A Break for Inherited Annuities

Inherited annuities usually offer beneficiaries few options. They can cash out the annuities (and pay all the income taxes) or stay with the same annuities they inherited. A new IRS ruling, however, opens more possibilities.

The beneficiary inherited a series of fixed and variable annuities. She wanted other annuities that better fit her needs and asked the IRS if she could exchange the inherited annuities tax free (a section 1035 exchange) for different annuities. The IRS said she could. (Private Letter Ruling 201330016)

This was a Private Letter Ruling, so legally it applies only to the person who asked for it. But it reflects the IRS’s thinking. Those who’ve inherited annuities should survey the market for products that meet their needs and ask about tax-free exchanges.