• Qualified: Funded with pre-tax money (like a 401k rollover). The entire withdrawal is taxed as ordinary income. Subject to RMDs.‍
• Non-Qualified: Funded with after-tax cash. Only the growth is taxed; principal is tax-free. No RMDs (unless annuitized in certain ways).

No. Unlike real estate or stocks, annuities do not receive a step-up in basis at death. They are considered "Income in Respect of a Decedent" (IRD). The beneficiary inherits the owner's original tax basis. If the annuity grew from $100k to $300k, the beneficiary owes ordinary income tax on the $200k gain when withdrawn.

Under the SECURE Act, most non-spouse beneficiaries inheriting an IRA annuity must empty the account within 10 years. New IRS rules require that if the owner had already started RMDs, the beneficiary must continue taking annual distributions in years 1-9 and fully deplete the account by year 10. This prevents massive tax deferral.

Yes. Section 1035 of the tax code allows you to swap a non-qualified annuity for a new one tax-free. This is ideal if your old annuity has high fees or low rates, and you want to move to a 2026 product with better features. It must be a direct transfer between insurance companies; do not cash the check yourself.

Yes. A Roth IRA Annuity offers the ultimate tax benefit: tax-free growth and tax-free withdrawals (after 5 years and age 59½). Since Roth IRAs have no RMDs during the owner's life, this is an excellent vehicle for wealth transfer, allowing the annuity to grow untouched for decades.

If an annuity owner dies, their spouse is typically the sole beneficiary who can elect "Spousal Continuation." This allows the spouse to take over the contract as if it were their own, maintaining the tax-deferred status and avoiding immediate tax liability. This is generally the most tax-efficient option for surviving spouses.