# Annuity vs. Brokerage Tax Impact at 85

> How $200,000 in an annuity taxes $240,000 growth for heirs vs. brokerage tax-free inheritance.
- Title: Annuity vs. Brokerage Tax Impact at 85 · 24/7 Wall St.
- Summary: How $200,000 in an annuity taxes $240,000 growth for heirs vs. brokerage tax-free inheritance. A 65-year-old's $200,000 annuity passes $240,000 in growth to…
- Keywords: nonqualified annuity, taxable brokerage account, federal tax code, inheritance tax, step-up basis, annuity growth, brokerage inheritance, taxable income, Annuity, Brokerage, Tax, Impact
- Source: 24/7 Wall St. — https://247wallst.com/personal-finance/2026/10/16/buy-a-200000-annuity-with-savings-at-65-and-leave-it-to-the-kids-at-85-and-about-240000-of-growth-is-taxed-as-their-income-the-same-200000-in-a-brokerage-account-passes-to-them-with-no-tax-on
- Author: David Beren
- Published: 2026-10-16T14:48:13+00:00
- Read time: 1 min
- Topics: nonqualified annuity, taxable brokerage account, federal tax code, inheritance tax, step-up basis, annuity growth, brokerage inheritance, taxable income
## Annuity vs. Brokerage Tax Difference
A 65-year-old with $200,000 in savings faces a choice between a nonqualified deferred annuity and a taxable brokerage account for inheritance.
## Growth Projection by Age 85
Assuming 4% annual growth from age 65 to 85, $200,000 becomes $438,225 with $238,225 in growth.
## Annuity Heirs Pay Tax on Growth
Annuity growth is taxed as ordinary income to heirs when inherited, with no step-up basis for inherited property.
## Tax Impact on Heirs
Heirs pay about $57,174 in federal income tax on $238,225 growth at 24% marginal rate, plus potential net investment income tax.
## Brokerage Account Step-Up Basis
Inherited brokerage accounts get a step-up basis equal to fair market value at death, avoiding capital gains tax on growth.
## Annuity Avoids Annual Tax Drag
Annuities avoid annual taxes on dividends and gains while brokerage accounts face yearly capital gains tax.
## Key Decision for Savers
Savers should sort funds by purpose: annuities for income needs, brokerage accounts for inheritance.
## Beneficiary Designations Matter
Review beneficiary designations and death-benefit options now to avoid outdated forms or poor ownership.
## Key takeaway

A 65-year-old's $200,000 annuity passes $240,000 in growth to heirs as taxable income by age 85, while brokerage accounts keep growth tax-free.