Impersonation Mode
  Tax Rules for Owning an Annuity  
Individually-Owned 72(q)
Imposes a 10% premature distribution penalty unless distributions meet one of the requirements:
  • Made after the annuitant turns 59 1/2 years old
  • Made after the death of the holder
  • Attributable to the disability of the annuitant
  • Periodic payments (made no less frequently than annually) are "substantially equal" and are made for the life or life expectancy of the annuitant
  • Made under a qualified funding asset as described in Section 130(d)
  • Made under an "immediate annuity" contract (payments must begin within 1 year)

Corporate-Owned 72(u)
When owned by non-natural persons (i.e. corporations, partnerships, trust, etc.) the annuity contract must comply with one of these exceptions:
  • The contract is a qualified funding asset as described in Section 130(d)
  • It is an "immediate annuity" contract, providing "substantially equal" periodic payments must begin within 1 year, must be made not less frequently than annually, and be purchased with a single premium
  • It is acquired by the estate of a decedent by reason of the death of the descendent
Note: There are no tax benefits for corporations when they own the annuity.

Payments after Death 72(s) The annuity must comply with, but is not limited to these provisions:
  • If the measured life dies on or after the annuity starting date, the payments must be made at least as rapidly as the method of distribution used prior to the date of death.
  • If the measured life dies before the annuity starting date, the entire interest in the Policy must be distributed within five (5) years.
  • Payments to a designated beneficiary must begin within one (1) year after the date of death.