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Annuity claim payment options

As the beneficiary of an annuity claim, you have several claim payment options based on the policy purchased. Shown below, are payment options that may be available. 


   
Assume Ownership

Continues contract and tax deferral

  • Available for a spouse who is the sole beneficiary
  • Contract continues and you will become new owner and annuitant on the contract
  • Terms of original contract will continue, but some optional benefits may terminate
  • Available for Qualified and Nonqualified contracts
Inherited IRA

Allows you to begin taking required minimum distribution (RMD) payments based on beneficiaries life expectancy*

  • Advantage to this method of payment is that distribution will be smaller and proceeds will not be taxable until actual payout is received
  • Allows distribution of death benefit over life expectancy with access to contract
  • Available for a spouse beneficiary. Ability to defer RMDs until spouse would have turned 70½ or assume ownership at a later date
  • Annual minimum distribution requirements based on IRS life expectancy table and requirements; distributions must begin by December 31 of year following death
  • Death benefit must be $10,000 or more
  • Available for Qualified contracts


*May not be available or may require a new application for fixed policies

Annuitization

Receive the death benefit over a specified period or lifetime

  • Spreads out tax liability over a period of years
  • Option is irrevocable
  • Must start by the first anniversary of the decedent’s death – Nonqualified Contract
  • Must start by December 31 of the year following death – Qualified Contract
  • Death benefit must be $5,000 or more
Five-year deferral

Allows you to defer taking death benefit proceeds from the annuity contract for a period of five years

Nonqualified

  • Distributions can be taken at any time and systematic withdrawal programs are available
  • Any gain or interest in the contract is distributed first as withdrawals are taken
  • Entire death benefit must be distributed by 5th anniversary following decedent’s death
  • Death benefit must be $10,000 or greater

Qualified

  • Entire death benefit must be distributed by December 31 of the year following 5th anniversary of decedent’s death
  • Distributions can be taken at any time and systematic withdrawal programs are available
  • Only available if owner was under 70 1/2
  • Death benefit must be $10,000 or greater
i4LIFE® Advantage

Optional annuitization rider that can be added to variable annuity contracts

  • Income payments meet requirement for life expectancy distributions for non-spouse beneficiaries
  • Spreads out tax liability over a period of years
  • Option is irrevocable
  • Must start by the first anniversary of the decedent’s death
  • Minimum $50,000 required
  • Available for nonqualified contracts
Establish your own contract

Taxable option and a new application is required

  • Available to non-spouse claimants
  • Tax deferral on future earnings and ability to purchase current product offerings
  • Available for nonqualified contracts
Extended Payout

Stretch contract with distributions based on the individual's life expectancy*

  • Only available for individual beneficiaries. Not available for trust or estate beneficiaries
  • Must begin distribution by the first anniversary of decedent’s death
  • Allows distribution of death benefit over life expectancy with access to contract
  • Death benefit must be $10,000 or greater
  • Available for nonqualified contracts

*May not be available or may require a new application for fixed policies

1035 Exchange

Section 1035 permits beneficiary of a nonqualified annuity contract to exchange it tax-free for another contract

  • Available to a spouse or non-spouse
  • Spousal beneficiaries can open or move the funds to an individually owned nonqualified contract; non-spouse beneficiaries can open or move the funds to an extended payout
  • Life expectancy payments must begin within one year of death for non-spouse beneficiaries
  • i4LIFE® can be utilized for the life expectancy distributions if opening a new Lincoln variable annuity contract
  • Carryover of cost basis of the original policy to the new policy
  • Available for nonqualified contracts
Direct Rollover

Transfer funds to another Lincoln contract or another financial institution

  • Available to a spouse or non-spouse
  • Spousal beneficiaries can open or move the funds to a traditional/Roth IRA; non-spouse beneficiaries can open or move the funds to a deceased IRA/Roth IRA
  • RMDs must begin by December 31 of year following death for non-spouse beneficiaries
  • Available for qualified plans
  • Lump sum
  • Available for qualified and nonqualified plans

   

Special state requirements

If federal income tax is withheld, state income tax may be withheld depending on your state of residence.

  • AK, AZ, FL, HI, NV, NH, RI, SD, TN, TX, WA, WY: No state income tax
  • DC, IA, ME, MA, NE, OK, VA: If federal income tax is withheld, mandatory state tax withholding is required.
  • AR, OR: If federal tax is withheld, you may opt out of state withholding.
  • DE, KS: If subject to mandatory federal tax withholding, then state income tax is also required. Otherwise, you may opt out of state income tax withholding.
  • MI: Must elect or opt out of state income tax withholding on form MI W-4P
  • NC: Mandatory withholding will apply unless form NC-4P is submitted to opt out or withhold more than the minimum.
  • CA: If federal tax is withheld, you may opt out of state withholding. If state tax withholding is elected, the minimum withholding must equal 10% or more of the federal withholding amount.
  • VT: If federal income tax is withheld, mandatory state tax withholding is required and must equal 24% or more.

     
Annuity options at a glance

Use this summary to compare qualified and nonqualifed options on your annuity.

View summary (PDF)