Annuity tax advice for a beneficiary

[Metoo]

Dad passed away last month and I’m a beneficiary of a non qualified annuity of about 129,000 with 69,000 is reported as taxable distribution. Should just take the lump sum and pay taxes(22%) or is there something else I can do?

[MDM]

Condolences to you and your family.

"Annuities" come with a wide variety of expenses, surrender fees, annual penalty-free withdrawal limits, etc.

Other than the lump sum, what options do you see?

[Metoo]

Thank you for response. I realize that annuities are not a mustachian financial vehicle. My husband says to take the lump sum and pay the taxes since it is inherited money. Though I have been on the phone with the possibility of doing a 1035, but then I would be stuck with my own annuity, which probably not be ideal. Has anyone done a 1035?

[MDM]

Has anyone done a 1035?

Yes, we helped a family member do one to get out of an insurance company annuity and into a Vanguard one, back when Vanguard did those.  Fidelity might be a good option now: Annuity Exchange | Tax-Free with Fidelity Personal Retirement Annuity | Fidelity, although we have no direct experience with their annuities.

Depending on your overall tax situation, and the annuity particulars both for the current one and what you get at Fidelity (or wherever), it might be worth doing the 1035 exchange, then taking an annual "10% penalty-free" distribution that will be 100% taxable, until you get to the non-taxable amount and take that as a lump sum.

[Mr. Green]

Many annuities will allow for a 5 year withdraw instead of lump sum. All taxable comes out first but this would allow you to spread it over multiple years if that helps with taxes. You can often annuitize it as well, turning it itnto a longer term payout based on whatever annuities the company offers. If annuitized the taxable would be spread evenly over the life of the annuity. My mom inherited significant six figures in annuities from her father when he passed and we worked to withdraw them over several years to help minimize the tax burden while still giving her fairly quick access to the money to get it invested or used for living expenses.