Distributions at Death

Owner dies during accumulation → the beneficiary receives the GREATER of the accumulated value or the contributions; any amount above premiums paid is taxable as ordinary income to the beneficiary (unlike life insurance's tax-free face amount). Under IRC §72(s), if the owner dies before the annuity starting date the entire interest must be distributed within 5 years — unless the beneficiary elects payments over their own life expectancy beginning no later than 1 year after death, which is how the tax gets spread. No beneficiary named → proceeds may be included in the deceased's estate.