For couples, a variable annuity is mainly a decision about income for two lives and control for the survivor. According to SEC Investor.gov, a variable annuity is a contract with an insurer whose account value changes with chosen investments such as mutual funds SEC variable-annuity glossary. Couples decide together how much income continues for the survivor and who can continue the contract. Those choices affect monthly income, taxes at death, and access to remaining value.
Table of Contents
- How does income for two lives work?
- Who controls the contract after one spouse dies?
- How are survivor benefits taxed?
- Does joint ownership help or hurt a spouse?
- What costs fall on both partners?
How does income for two lives work?
Investopedia explains a joint-and-last-survivor payout covers two lives and pays less each month than a comparable single-life payout. The lower payment buys continuation for the survivor. Couples commonly select 50%, 75%, or 100% of the original payment to continue.
A 100% option keeps the full check for the survivor and starts with the lowest monthly amount. A 50% option starts higher but cuts the survivor payment in half. Couples weigh current spending needs against survivor protection.
Who controls the contract after one spouse dies?
According to the Voya/ING variable annuity prospectus filed with the SEC, many contracts let a surviving spouse continue the contract as the new owner Voya prospectus filed with the SEC. This option applies when the spouse is the sole primary beneficiary and replaces taking the death benefit. Continuation preserves tax deferral under IRC Section 72(s).
Internal Revenue Code Section 72(s)(2) sets a stricter rule for non-spouse beneficiaries of a nonqualified annuity. They generally must take the entire interest within five years of death or begin life-expectancy-based payments within one year of death. That deadline can force faster taxable distributions than spousal continuation.
How are survivor benefits taxed?
A Financial Strategists summary of variable annuity death-benefit taxation states that gains paid to beneficiaries are generally taxable as ordinary income to the recipient. A spouse who elects continuation owes no tax at that time. Tax applies only to later withdrawals.
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The difference matters for timing. A lump-sum death benefit can create ordinary income in one year. Continuation defers that tax event and leaves more invested longer.
Does joint ownership help or hurt a spouse?
According to Kitces.com, naming the spouse as beneficiary rather than using joint ownership often preserves spousal continuation Kitces analysis of joint ownership. Joint ownership can force a taxable post-death distribution at the first owner's death. Beneficiary status keeps the continuation path open.
Couples can check the contract before changing titles. Title wording controls options after death. Confirm these points:.
- Keep spouse as sole primary beneficiary if continuation is the goal.
- Ask insurer how any ownership change affects death benefit and continuation.
- Review beneficiary forms after marriage, divorce, or new contract.
What costs fall on both partners?
FINRA warns that variable annuities can impose surrender charges, mortality-and-expense risk charges, and administrative fees FINRA guidance on exchanging a variable annuity. FINRA also lists underlying fund expenses and extra charges for special features or riders. Both spouses share the drag because fees reduce account value.
The Wealth Advisor notes income-rider fees are commonly assessed on a separate income base rather than account value. The charge is deducted from actual invested assets. A stated 1% rider charge can therefore exceed 1% of the account.
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