Clear Money Guide
What this guide covers
A quick view of the questions and evidence developed below.
Updated August 1, 2026. Quick answer: no. The SECURE Act’s 10-year rule does not apply to a nonqualified annuity — one bought with after-tax money outside an IRA or employer plan. That rule lives in IRC §401(a)(9)(H), and the subparagraph opens with the words “In the case of a defined contribution plan”. A nonqualified annuity is not one. It is governed by IRC §72(s), which SECURE did not amend, and §72(s) still offers the five-year rule or, for a designated beneficiary, payments over life expectancy that must begin within one year of the death. Several widely syndicated articles get this wrong, and the error has a real cost.
Which rules govern which contract
Qualified — an annuity inside an IRA or an employer plan. The account is a retirement account first and an annuity second. The post-SECURE distribution rules for that account type apply, and the whole balance is generally taxable as it comes out because it was funded with pre-tax money. What changes when the annuity sits inside an IRA. Nonqualified — bought with money you had already paid tax on. §72(s) governs. Only the gain is taxable; your basis comes back tax-free. The routes and their deadlines are quoted in full at what happens to an annuity when the owner dies, and priced at the three routes, computed.
One year is a short deadline to discover late.
If the death was recent and the contract is nonqualified, the clock is already running. The matching service below introduces you to advisers who pay to meet you.
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Why the wrong rule costs real money
Someone told they have ten years will not feel any urgency in month eleven. But §72(s)(2) requires the life-expectancy payments to begin not later than one year after the date of the holder’s death. Miss that and the alternative is gone: you fall back to the five-year rule, compressing the same gain into five years instead of a lifetime. On a contract with a large gain that is the difference between a small level amount of income each year and several fully taxable years — and because §72(e)(2)(B) takes gain out first, those early years are the taxable ones. Nothing about that is recoverable once the year has passed.
What to check, in order
1. Ask the insurer, in writing, whether the contract is qualified or nonqualified, and what the cost basis is. Both answers change everything downstream and neither should be guessed. 2. If it is nonqualified, find the date of death and count forward one year — that is your §72(s)(2) deadline, and it is a deadline to have distributions beginning, not merely a decision made. 3. If you are the surviving spouse, §72(s)(3) lets you be treated as the holder instead, which is a different and usually better option. 4. Then price the routes before choosing one: the calculator.