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I'm the beneficiary of an annuity. The owner of the annuity let the interest roll back into the annuity. Now, the annuity has been paid out with interest. Do I have to pay tax on the interest?
The annuity payout at death is a death benefit to a beneficiary. The only interest that's taxable is the interest earned after the date of death.
There's usually a lag time between the date of death and the time the actual claim is paid. Interest earned during that period is taxable.
You'll receive a Form 1099 for the annuity proceeds. However, the death benefit isn't taxable.
You must report earnings from a nonqualified annuity distribution as taxable interest income. A nonqualified annuity is an investment that’s not classified as a retirement account.
If you'd like to learn more, see Publication 559: Survivors, Executors, and Administrators at www.irs.gov.