What Are The Tax Consequences Of My Current Annuity?


Do You Have Options?

Although annuities have existed in their present form for only a few decades, the idea of paying out a stream of income to an individual or family dates back to the Roman Empire. One of the early recorded uses of annuities in the United States was by the Presbyterian Church in 1720. The purpose was to provide a secure retirement to aging ministers and their families.

Today, there are literally thousands of different annuity products available in the United States. As the annuity industry has grown, the amount of options for investors has grown substantially, especially for those who have owned a contract for more than five years.

So, let’s start with the basics:

What is an annuity? An annuity is a contract between you and an insurance company.

Are there different types of annuities? Annuity contracts can be divided into two different types: immediate and deferred. With an immediate annuity, you can convert assets into income and start receiving income payments right away. With a deferred annuity, assets accumulate, tax-deferred, until withdrawals are made, usually during retirement.

What are some of the advantages of an annuity? Tax deferral has always been the main advantage of an annuity, but modern annuities offer many more options than just tax deferral. Some other advantages available are annuities that have guaranteed minimum death benefits, income benefits, withdrawal benefits or accumulation benefits.

As a certified public accountant (CPA), I am asked some of these questions by clients that are current annuity holders:

What are options available to me for my current annuity contract? Can a stream of income be taken from my annuity? What are the tax implications? Can you upgrade or move it to another annuity company with better modern-day benefits? How does this affect my Social Security income? Can you use your current annuity for long-term care? Can you take a tax loss on your variable annuity?

On Wednesday, July 19, at 7:00pm, Lisa Clarke will host an information workshop for current annuity owners to discuss the questions above and topics such as taking income from your annuity and the tax implications; using the IRC 1035 exchange rules to upgrade your annuity; modern-day annuity benefits; liquidating variable annuities for a tax loss; and transferring ownership of annuity contracts (gifting). The workshop will be held at Chartwell Country Club, located at 1 Chartwell Drive in Severna Park. Email your RSVP to jaime@cyacpas.com or call 410-721-9760 ext. 1 to secure a seat. Clarke Perlin LLC is a full-service CPA firm specializing in individual taxes, business taxes, CFO consulting, and financial mediation and analysis. For more information, visit www.cyacpas.com.


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