Tax Liability on an Inherited Annuity Payout
I am the beneficiary of a non-Qualified Annuity with a Death Benefit. The annuity paid out over the years and the cost benefit is less than half of the death benefit. My financial advisor looked at it and says the death benefit should be viewed like as a life insurance (like a rider) and should NOT be subject to tax. The annuity holder tells me I will owe regular income tax on the amount between the cost benefit and the death benefit (over 50% of the total payout). Which is correct? And should I tell the annuity company to withhold the taxes or should I just get the full lump sum, put it in savings and deal with the taxes next year and pay then (after I've been ale to accrue some interest on the full amount)?
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