Death Benefit Annuity & Social Security
Recently a citizen wrote into The Dallas Morning News to inquire about the effects that their inheritances would have on their social security payments and taxes. In Gary Silverman’s answer entitled “Impact of Insurance and Annuity Payments on Social Security and Taxes,” he explains the possible outcomes. The citizen has been receiving social security payments early at age 63, so any increase in earned income would likely decrease their social security payments. Since the inherited death benefit annuity and life insurance are not considered earned income, they don’t have to worry about this new money lowering their social security payments.
There may be some tax consequences though. Depending on the citizen’s marital status and income level, their modified adjusted gross income level will likely increase. Based on the increase a percentage of social security benefits ranging from 0% to 85% will be taxable. The Social Security Administration website or local office can easily determine that. Only the gains made on annuities are taxable, so those gains would be the only money subject to federal taxes from the inherited annuity and life insurance policy. The author recommends speaking with both the Social Security Administration and a tax professional in times when your situation dramatically changes from year to year, especially due to an inheritance.
