Annuity Planning · Tool 17 of 12
Estate & Legacy Annuity
Death-benefit and beneficiary-tax outcomes by pathway. Routes the contract through the right §72(s) NQ-5yr or SECURE 10-yr or spousal-continuation branch and surfaces the NQ VA no-step-up IRD trap.
Pathway: five year rule
§72(s) 5-year rule applies. The entire account must be distributed by December 31 of the year containing the 5th anniversary of death. Alternative: annuitize the full account over the beneficiary's life within 1 year of death (annuity-payout exception).
Tax exposure
Account value
$400,000
Untaxed gain
$250,000
Projected tax over pathway
$60,000
NQ VA · IRD treatment. Non-qualified VA gain is income in respect of decedent. Beneficiary inherits the owner's basis (no §1014 step-up). Projected tax: $60,000 at the beneficiary's marginal rate. A taxable brokerage with the same gain would get a full step-up — this is the biggest gotcha of NQ VAs at death.