How to gauge the income tax consequences of an annuity transaction
May 16, 2016 by Russell E. Towers, J.D., CLU, CHFC
Deferred annuities and single premium immediate annuities (SPIAs) are great financial vehicles for either tax deferred accumulation of a retirement fund or efficient distribution of principal and interest over life expectancy. However, over the lifetime of the contract owner, financial and estate planning situations occur that require a transaction to be executed on an existing annuity product.
These transactions could include annuitized settlement options, IRC Section 1035 exchanges, changes of ownership, payment to a beneficiary upon the death of the annuitant/owner, lifetime withdrawals from the annuity contract etc.
To determine the income tax consequences, if any, when an annuity transaction occurs requires a tracking and verification of the “investment in the contract.” We typically refer to this amount as the cost basis of the annuity. Click HERE to read more…
