There's a question of what to do with the remaining basis of an annuity upon the death of its owner? In Minnesota many people receive Public Employee Retirement Association (PERA) when they retire. I expect to see on their 1099-Rs a slightly larger Gross distribution than Taxable distribution. The difference represents a part of their unrecovered basis in the plan (of their after tax money). Where does this untaxed money go upon their death? I think it goes to their beneficiary when there is one.

I noticed a surviving spouse taking over the payments recently. The spouses 1099-R didn't show basis because the Gross distribution equaled the Taxable distribution. It seems we should either convince PERA to change how it does things, or find out what the remaining basis is and figure the basis recovered each your ourselves.

In looking into this issue if found this clear as mud support for my position:   Basis    Cornell who has this information is thanked. The problem with trying to understand it is with the IRS, who wrote what Cornall reproduces, who often fails to write in simple terms for normal people. I can also write that carrying forward and using this uncovered basis makes sense to an accountant because it balances the books. Because the money that was once taxed, is not taxed again.

"the deduction...   ...shall be allowed to the person entitled to such payments for the taxable year in which such payments are received." - The IRS