Liquidating annunities

“There were so many policies, it was easier to come up with a combination that made sense,” Mr. “If you have one or two policies, you have to say, "You take the annuity and I'll take the house.' It never makes sense to divide the annuities up,” Mr. [email protected] the sixth year, Investment News will host the Best Practices Workshop & Awards, bringing together the industrys top-performing and most influential firms in one room for a full-day.

But that Solomon-like decision was made without the attorneys' awareness of its dire financial consequences. Russell's client had to pay an 8% surrender charge and a 10% penalty for liquidating her half of the annuity that was held in the IRA. Russell, vice president of Gallo & Russell Inc., the experience is hardly uncommon.

A qualified annuity is taxed identically to any other qualified account such as an IRA, 401(k), profit sharing plan or other tax-deferred retirement account.

Nonqualified annuities are taxed differently from most investments: Withdrawals – Withdrawals of earnings from a nonqualified annuity are fully taxable at ordinary income tax rates.

Unless the annuity was purchased before August 14, 1982, the earnings are considered withdrawn first and are therefore subject to taxation.

All withdrawals will be fully taxable as ordinary income until the account value reaches the initial amount invested.

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This is crucial because living benefits in an existing annuity may no longer be available on a new annuity, should the owner decide to share the asset through a partial exchange.

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