diff --git a/conformance/third_party/conformance.exp b/conformance/third_party/conformance.exp
index e119b986f7..c8c9269ed6 100644
--- a/conformance/third_party/conformance.exp
+++ b/conformance/third_party/conformance.exp
@@ -1800,17 +1800,6 @@
       "stop_column": 16,
       "stop_line": 66
     },
-    {
-      "code": -2,
-      "column": 12,
-      "concise_description": "Returned type `Literal[True]` is not assignable to declared return type `None`",
-      "description": "Returned type `Literal[True]` is not assignable to declared return type `None`",
-      "line": 71,
-      "name": "bad-return",
-      "severity": "error",
-      "stop_column": 16,
-      "stop_line": 71
-    },
     {
       "code": -2,
       "column": 11,
diff --git a/pyrefly/lib/alt/unwrap.rs b/pyrefly/lib/alt/unwrap.rs
index bde9e52f93..416e3cb3b6 100644
--- a/pyrefly/lib/alt/unwrap.rs
+++ b/pyrefly/lib/alt/unwrap.rs
@@ -447,9 +447,10 @@ impl<'ctx, 'answer, Ans: LookupAnswer> AnswersSolver<'ctx, 'answer, Ans> {
             let send_ty = self
                 .resolve_var_opt(ty, send_ty)
                 .unwrap_or_else(|| self.heap.mk_none());
+            // Iterator and Iterable annotations do not constrain the generator's return value.
             let return_ty = self
                 .resolve_var_opt(ty, return_ty)
-                .unwrap_or_else(|| self.heap.mk_none());
+                .unwrap_or_else(|| self.heap.mk_any_implicit());
             Some((yield_ty, send_ty, return_ty))
         } else {
             None
diff --git a/pyrefly/lib/test/yields.rs b/pyrefly/lib/test/yields.rs
index e3cf7b747c..fff19c6134 100644
--- a/pyrefly/lib/test/yields.rs
+++ b/pyrefly/lib/test/yields.rs
@@ -639,6 +639,36 @@ def g() -> Iterator[list[int]] | Iterator[list[str]]:
     "#,
 );
 
+testcase!(
+    test_iterator_annotation_with_return_value,
+    r#"
+from collections.abc import Generator, Iterable, Iterator
+from typing import assert_type
+
+def gen(x: int) -> Iterator[int] | int:
+    yield from range(4)
+    return 5
+
+assert_type(gen(0), Iterator[int] | int)
+
+def iterator() -> Iterator[int]:
+    yield 1
+    return "done"
+
+def iterable() -> Iterable[int]:
+    yield 1
+    return "done"
+
+def bad_yield() -> Iterator[int] | int:
+    yield "oops"  # E: Yielded type `Literal['oops']` is not assignable to declared yield type `int`
+    return 5
+
+def explicit_return_type() -> Generator[int, None, None] | int:
+    yield 1
+    return 5  # E: Returned type `Literal[5]` is not assignable to declared return type `None`
+    "#,
+);
+
 testcase!(
     test_return_is_incompatible_with_generator,
     r#"