Non-spouse beneficiaries: annuities in IRAs and the 10-year rule

An IRA annuity is an annuity contract held inside an IRA. The beneficiary must satisfy both the federal inherited-IRA distribution rules and the insurer's contract procedures. A settlement election that appears permissible under the contract cannot override an earlier tax deadline.

For a deeper account-structure explanation, see The Trusted Advisor's annuities in IRAs guide.

The post-SECURE 10-year rule described here applies to a post-2019 death when the recipient is an individual designated beneficiary who is not an eligible designated beneficiary. If there is no designated beneficiary - for example, because the estate, a charity, or a non-see-through trust is the beneficiary - different rules apply: the five-year rule generally applies when death occurs before the required beginning date, while the employee’s remaining life-expectancy rule generally applies when death occurs on or after that date.

Eligible designated beneficiaries include the surviving spouse, certain disabled or chronically ill people, minor children of the owner, and beneficiaries not more than ten years younger than the owner. Their treatment differs, and for a minor child that status is time-limited — see “Age 21 and moving the inherited account” below.

Use the IRS's current RMD FAQs and the 2024 final regulations (T.D. 10001), not a pre-SECURE “stretch IRA” summary.

Most designated beneficiaries who are not eligible designated beneficiaries must distribute the entire inherited account by December 31 of the calendar year containing the tenth anniversary of the owner’s death. If the owner died on or after the required beginning date, annual life-expectancy distributions generally also apply during years 1-9. If the owner died before the required beginning date, the account generally need only be emptied by the year-10 deadline. Any unpaid year-of-death RMD is a separate requirement.

Have the custodian or administrator confirm any unpaid year-of-death RMD in writing.

The owner’s child is an eligible designated beneficiary only until the child reaches age 21 for this federal rule. A nonspouse beneficiary of an employer plan may be able to use a direct rollover to a properly titled inherited IRA under IRC § 402(c)(11); an ordinary 60-day rollover to the beneficiary’s own IRA is not the same transaction. Preserve inherited-account titling and coordinate the annuity contract with the custodian before moving or surrendering the contract.

Death does not eliminate ordinary income tax on the taxable portion of a distribution, but it can affect the separate 10% additional tax. Qualified-plan and IRA distributions made to a beneficiary or estate after the participant’s death generally fall within IRC § 72(t)(2)(A)(ii).

• A payout schedule may extend beyond the tax-law deadline.
• Surrender charges or market-value adjustments may affect liquidity.
• An income rider's benefit base may not be available as a lump sum.
• The insurer and IRA custodian may have separate forms and processing times.
• A non-spouse beneficiary generally cannot treat the inherited IRA as their own.

1. Confirm the owner's date of death and required beginning date.
2. Confirm whether the recipient is a designated or eligible designated beneficiary.
3. Ask whether a year-of-death RMD remains unpaid.
4. Obtain the annuity's surrender value, death benefit, basis records, and settlement menu.
5. Map every contract election against annual RMDs and the final distribution deadline.
6. Keep beneficiary titling intact; do not deposit an inherited-IRA distribution into the beneficiary's own IRA without qualified advice.