Re: [taxchat] Re: annuity

The first question to be answered is whether the annuity investment was made with pre-tax or after tax dollars.  In most cases the investment should have been made with after tax dollars and what is tax deferred is the income.  Some financial advisors recommend putting pre-tax dollars into an already tax deferred investment - the annuity wish may or may not be a good idea.  I am now in the middle of a client presented within a retirement plan presentation to rollover the 401 k proceeds to an Annuity.  This is after tax dollars and 100% of the money distributed  from this annuity is taxable.  Usually investments in an annuity is with pre tax dollars to get the deferral of income after the taxpayer has maxed the annual retirement plan contribution limits and have more to invest and looking for more tax relief.  Apparently the original issue of Congress to do so was to give the rich another tax free benefit.

 

So, if this annuity being discussed was originally with pretax dollars (in a retirement plan) then all is taxable.  If not only a portion of the proceeds is taxable. I don't have the procedures exactly in my brain to give you the details, but there is relief from paying taxes on the after tax investment portion being in part distributed currently, by way of allocation, of the principal separate from income by some formula.  I'll try to find something more on this for y'all.

 

Arnie

 

----- Original Message -----

From: mjsanders2

To: taxchat@yahoogroups.com

Sent: 12/05/2008 10:17 AM

Subject: [taxchat] Re: annuity

Ira,
The key to what I hear you saying is "Tax-deferred". That tells me
it is taxable when it comes out. To my understanding if they
received the tax benefit going in which created the tax-deferred
situation, then losses inside the program are not taken a second
time.
Considering the size of the annuity, my mind is questioning whether
it was a tax-deferred annuity or a lump sum contribution of after tax
money and the only taxable part is the earnings. If I remember
correctly, the earnings do have to come out first (taxable).
Janet

--- In taxchat@yahoogroups.com, "John Stevens, Equi-Tax"
<equitax@...> wrote:
>
> Ira,
>
>
>
> I think for certain annuities you need to leave it with the trustee
for a
> certain minimum time in order to be able to exclude a portion of
each
> distribution, and if you don't, then distributions are first made
from the
> earnings. I'm not sure about this, however.
>
> John Stevens, EA
> Stevens Tax & Accounting, Inc., dba Equi-Tax
> 1870 - 50th St. E., Suite 8
> Inver Grove Heights, MN 55077
> 651-773-5000
> FAX 651-457-4529
> equitax@...
> www.equitax.net
>
>
>
>
> _____
>
> From: taxchat@yahoogroups.com [mailto:taxchat@yahoogroups.com] On
Behalf Of
> iakleincpa
> Sent: 12/03/2008 11:00 PM
> To: taxchat@yahoogroups.com
> Subject: [taxchat] annuity
>
>
>
> Group,
>
> Appreciate your help with question for tax-deferred annuity.
>
> Client invested 650k in a tax deferred annuity about 5 years ago.
>
> In Jan 08, the fmv of the annuity was around 1 million.
>
> Client was 70.
>
> She started taking 5k per month in distributions.
>
> Administrator of annuity said that since fmv > cost for
annuity...all
> of the 5k would be taxable.
>
> Is this correct, or am I allowed to use the Simplified Method to
> allocate cost of annuity to each distribution based on her life
> expectancy?
>
> Thank you,
> Ira Klein
> Rye, NY
>

Arnie Socol
President
Ways & Means, Inc.
845-562-6070

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