What happens to a fixed indexed annuity when you die?
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Short answer: If you die before income starts, your named beneficiary receives the death benefit, which is generally at least the account value. Surrender charges are often waived at death. Beneficiaries generally owe ordinary income tax on any gain (on the whole amount if it's in a traditional IRA). If income had started, what's left depends on your payout option.
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Before income starts
Most people who own a fixed indexed annuity (FIA) are still in the accumulation phase, letting it grow. If you die during that time, the SEC's Investor.gov annuities page says the person you name as beneficiary receives at least the current value of the annuity, perhaps more. Some contracts offer an enhanced death benefit for an extra cost.
The NAIC Buyer's Guide says a basic death benefit pays some or all of the annuity's value to your beneficiaries, either in one payment or over time, and suggests looking for surrender charge waivers for events such as a death.
Example: you put $100,000 into a non-qualified FIA. When you die, the account value is $125,000. Your beneficiary receives $125,000, and the $25,000 gain is taxable to them as ordinary income.
If you've turned on income
What happens depends on how income is being paid.
- Income rider. Payments based on a single life usually stop at death. Any remaining account value generally passes to your beneficiary. A joint-life option can keep payments going for a surviving spouse.
- Annuitized payments. FINRA's annuities page warns that, depending on the payout option, the insurer may not be obligated to keep paying your spouse or refund premiums to your estate. Options with a period certain or refund feature cost more income but protect heirs.
How beneficiaries are taxed
The NAIC says survivors typically owe income tax on any death benefit from an annuity. Annuities don't get the step-up in basis that stocks often get, so the gain is ordinary income to whoever receives it, according to ThinkAdvisor's Tax Facts. Taking the money over several years can spread that tax out.
If the FIA is inside an IRA, the IRA's beneficiary rules apply. The IRS RMD FAQs say most beneficiaries of owners who died after 2019 must empty the account within ten years. Exceptions include a surviving spouse, a minor child, a disabled or chronically ill person, and someone not more than 10 years younger than the owner. Not tax advice.
A surviving spouse
A spouse named as beneficiary may be able to continue the contract as the new owner instead of cashing it out, depending on the contract. Federal tax law lets a surviving spouse beneficiary be treated as the contract's holder (26 U.S.C. § 72(s)(3)). Ask how spousal continuation works before you buy.
Keep your beneficiaries current
The NAIC's buyer checklist asks: how do I make sure my chosen beneficiaries will receive any payment from my annuity if I die? Name a primary and a backup beneficiary, and review them after a marriage, divorce or death in the family.
How it compares with a CD
A CD can name a payable-on-death beneficiary at the bank, as the FDIC describes. An FIA names beneficiaries in the contract and can offer payout choices over time.
Questions worth asking
- Is the death benefit the account value, or something more?
- Are surrender charges waived at death?
- What payout choices will my beneficiary have?
- If I turn on income, what happens to what's left when I die?
Plain-English FAQ
Does my beneficiary pay surrender charges if I die?
Often not. Many contracts waive surrender charges on death. Confirm it in your contract's surrender charge section.
Is an annuity death benefit taxable?
Generally, the gain is. Beneficiaries owe ordinary income tax on the amount above what was paid in for a non-qualified annuity. For an annuity in a traditional IRA, the whole amount is generally taxable.
Does an annuity get a step-up in basis at death?
No. Unlike many stocks, annuities generally don't get a step-up in basis, so the gain is taxed as ordinary income to the beneficiary.
What happens to my income rider payments when I die?
Single-life payments usually stop. Any account value left generally goes to your beneficiary. A joint-life option can continue payments for a surviving spouse.
Ready for your number?
Every contract has its own caps, fees and surrender schedule, so the general rules on this page only go so far. You can get a free one-minute income quote at quote.garycosby.com, and if you choose, talk with one of our licensed agents about how a specific contract works. It's your money and your decision.
More guides
- What is a fixed indexed annuity?
- How are fixed indexed annuities taxed?
- Is the benefit base on an FIA income rider real money?
Sources
- SEC Investor.gov, "Annuities" (page date not shown; checked October 23, 2026). https://www.investor.gov/introduction-investing/investing-basics/investment-products/annuities
- NAIC, "Buyer's Guide for Deferred Annuities" (2022 edition; checked October 23, 2026). https://content.naic.org/sites/default/files/publication-anb-lp-consumer-annuities-fixed.pdf
- FINRA, "Annuities" investor page (page date not shown; checked October 23, 2026). https://www.finra.org/investors/investing/investment-products/annuities
- ThinkAdvisor Tax Facts, Q 591, taxation of amounts payable at an annuitant's death before annuitization (updated October 20, 2026; checked October 23, 2026). https://www.thinkadvisor.com/tax-facts/2024/03/13/591-if-an-annuitant-dies-before-a-deferred-annuity-matures-or-is-annuitized-is-the-amount-payable-at-the-annuitants-death-subject-to-income-tax/
- IRS, "Retirement plan and IRA required minimum distributions FAQs" (last reviewed January 29, 2026; checked October 23, 2026). https://www.irs.gov/retirement-plans/retirement-plan-and-ira-required-minimum-distributions-faqs
- 26 U.S.C. § 72(s)(3), via Cornell Law School Legal Information Institute (page date not shown; checked October 23, 2026). https://www.law.cornell.edu/uscode/text/26/72
- FDIC, "Your Insured Deposits" (last updated May 14, 2024; checked October 23, 2026). https://www.fdic.gov/resources/deposit-insurance/brochures/insured-deposits
All figures on this page come from the dated sources above. Dollar amounts and percentages labeled Example are illustrations, not rates, quotes or predictions.