Non-customer has an annuity
I meeting for the first time with a prospect whom I understand has an annuity she is not happy with.
Assuming she is not 59 1/2 I have two questions:
If it's a non qualified annuity she will have to pay ordinary income taxes on only any gains I presume?
If it's a non qualified annuity she will have to pay a 10% federal income tax penalty on the entire amount surrendered? (e.g) If she surrenders a $100,000 contract the federal tax penalty is $10,000
Since I hardly deal with insurance contracts like this I just wanted to confirm.
I also realize there could be a substantial surrender charge depending on the date of purchase.
Thanks in advance.
Scrim
ordinary taxes on gain + penalty on gain + (possible) surrender charges on entire amount
ah ok....
so the 10% federal tax penalty would only apply to any earnings in a non-qualified contract.....
thanks for clarification
Questions to know the answers to (in no particular order) before you can make any recommendation.
1. What is she unhappy about
2. VA or Fixed or EIA annuity
3. How close is she to 59 1/2
4. What is the amount of gain in the contract
5. What was her purpose in doing an annuity in the first place.
6. What are the surrender charges and time to end of surrender charges.
7. What is her tax bracket, income level
(Withdrawing, even without a penalty, might bump her into a higher tax bracket and cause some real problems depending on how much gain there is)
It appears what early withdrawal from a NQ annuity contract is treated similarly from a penalty standpoint as an IRA.
Logic should've told me that.
Thanks for the help.
scrim
Scrim, your logic is not necessarily correct. If the IRA is deductable, the penalty is on the entire amount, not just the gain.
BL,
I am going to keep your list of inquiries in front of me when I meet with her tomorrow.
Thank you!
I know you are not an accountant but with the whole "pushing into a higher tax bracket" issue isn't that mostly mitigaged since it's a marginal tax system?
scrim
Thanks anon.
Very true!
I'm glad I'm not an accountant!
Scrim,
Consider a 1035 exchange into a better annuity product. This way she can avoid the early withdrawl penalty (although she may still have a surrender charge).
[quote=babbling looney]
Questions to know the answers to (in no particular order) before you can make any recommendation.
1. What is she unhappy about
2. VA or Fixed or EIA annuity
3. How close is she to 59 1/2
4. What is the amount of gain in the contract
5. What was her purpose in doing an annuity in the first place.
6. What are the surrender charges and time to end of surrender charges.
7. What is her tax bracket, income level
(Withdrawing, even without a penalty, might bump her into a higher tax bracket and cause some real problems depending on how much gain there is)
[/quote]
Leave it to a woman to have the naivety to think that all dollars are taxed at the "higher tax bracket" rate. I hope you don't advise people on how to handle money.
[quote=scrim67]
BL,
I am going to keep your list of inquiries in front of me when I meet with her tomorrow.
Thank you!
I know you are not an accountant but with the whole "pushing into a higher tax bracket" issue isn't that mostly mitigaged since it's a marginal tax system?
scrim
[/quote]
Isn't it the height of arrogance for you to give advice on something you know absolutely nothing about? Are you going to disclose to her that you sought counsel, yesterday, from a bunch of idiots on the internet?
Don't listen to BL. She just proved what I've been thinking all along. She doesn't know what she thinks she knows and doesn't even know it. Very dangerous.
[quote=Bobby Hull][quote=babbling looney]
Questions to know the answers to (in no particular order) before you can make any recommendation.
1. What is she unhappy about
2. VA or Fixed or EIA annuity
3. How close is she to 59 1/2
4. What is the amount of gain in the contract
5. What was her purpose in doing an annuity in the first place.
6. What are the surrender charges and time to end of surrender charges.
7. What is her tax bracket, income level
(Withdrawing, even without a penalty, might bump her into a higher tax bracket and cause some real problems depending on how much gain there is)
[/quote]
Leave it to a woman to have the naivety to think that all dollars are taxed at the "higher tax bracket" rate. I hope you don't advise people on how to handle money.
[/quote]
Who said that "all dollars" are taxed at the higher tax bracket rate? I just observed that if the amount of deferred ordinary income is significant and it is all withdrawn from an annuity in one year it might bump the client into another tax bracket. You find something erroneous with that?
Isn't one of the purposes of an annuity to defer taxes? Why would you put a client into a position of incurring a larger tax hit if it wasn't necessary? The same thing goes for doing switches, from mutual funds in the same fund family that have large defered capital gains growth. If the client is aware of the tax ramifications of doing a switch fine, but quite often they are not and get a nasty surprise come next years visit with the CPA because they didn't set the funds aside to cover the taxes. Is this too hard to understand?
The answers to the questions that I proposed will determine whether the client should stay in the annuity, 1035 exchange to another annuity, partially withdraw the free amounts from the annuity or cancel the contract entirely.
Isn't one of the purposes of an annuity to defer taxes?
It could be, but this typically is a pretty poor reason especially if we are talking about a VA since much of what is happening is the exchange of capital gains taxes for income taxes.
This whole thread is missing something very important. Scrim knows absolutely nothing about the client. Start by taking a fact finder and go from there. It's very possible, for example, that the client is unhappy simply because the broker never calls. Maybe, the client simply isn't happy with the chosen sub-accounts, etc. Experience has taught me that is very seldom appropriate to move money from an annuity when surrender charges are involved.
[quote=babbling looney][quote=Bobby Hull][quote=babbling looney]
Questions to know the answers to (in no particular order) before you can make any recommendation.
1. What is she unhappy about
2. VA or Fixed or EIA annuity
3. How close is she to 59 1/2
4. What is the amount of gain in the contract
5. What was her purpose in doing an annuity in the first place.
6. What are the surrender charges and time to end of surrender charges.
7. What is her tax bracket, income level
(Withdrawing, even without a penalty, might bump her into a higher tax bracket and cause some real problems depending on how much gain there is)
[/quote]
Leave it to a woman to have the naivety to think that all dollars are taxed at the "higher tax bracket" rate. I hope you don't advise people on how to handle money.
[/quote]
Who said that "all dollars" are taxed at the higher tax bracket rate? I just observed that if the amount of deferred ordinary income is significant and it is all withdrawn from an annuity in one year it might bump the client into another tax bracket. You find something erroneous with that?
Isn't one of the purposes of an annuity to defer taxes? Why would you put a client into a position of incurring a larger tax hit if it wasn't necessary? The same thing goes for doing switches, from mutual funds in the same fund family that have large defered capital gains growth. If the client is aware of the tax ramifications of doing a switch fine, but quite often they are not and get a nasty surprise come next years visit with the CPA because they didn't set the funds aside to cover the taxes. Is this too hard to understand?
The answers to the questions that I proposed will determine whether the client should stay in the annuity, 1035 exchange to another annuity, partially withdraw the free amounts from the annuity or cancel the contract entirely.
[/quote]
No, but I find something irrelevant about it.
No, but I find something irrelevant about it.
You would.
[quote=babbling looney]
No, but I find something irrelevant about it.
You would.
[/quote]
Little Lady, anyone with at least marginal business acumen would find your comment to be irrelevant. If you want to do well in a man's world, learn to only speak when called upon. Have a nice weekend.
Hey Bobby - take the towel off of your head. We don’t think like that in this country. You’ve been here for what, a week, and you’re bashing someone who has been here for years? BTW if you think that BL said anything about all dollars being taxed at the highest tax bracket you need to take a reading comprehension class. Do youself a favor and don’t speak until spoken to. Maybe someday you’ll be as good as BL.
Leave it to a woman to have the naivety to think that all dollars are taxed at the "higher tax bracket" rate.
Leave it to a woman to have the naivety to think that all dollars are taxed at the "higher tax bracket" rate.
Emporer marches down The Street, naked. Relating these comments to your desire to just sell people " what they want ", what you want, and you have a case for Calvin, philosophy, ethics. Guess you missed that in biz school.
"Little Lady, anyone with at least marginal business acumen would find your comment to be irrelevant. If you want to do well in a man's world, learn to only speak when called upon. Have a nice weekend."
Bobby Hull- you're a joke... It's pathetic that you make comments purely to incite others.
[quote=Spaceman Spiff]Hey Bobby - take the towel off of your head. We don’t think like that in this country. You’ve been here for what, a week, and you’re bashing someone who has been here for years? BTW if you think that BL said anything about all dollars being taxed at the highest tax bracket you need to take a reading comprehension class. Do youself a favor and don’t speak until spoken to. Maybe someday you’ll be as good as BL.[/quote]
This is only his most recent incarnation Spiffy…
[quote=anonymous]
Start by taking a fact finder and go from there.
Wisest words on this entire thread…
[quote=joedabrkr] [quote=Spaceman Spiff]Hey Bobby - take the towel off of your head. We don't think like that in this country. You've been here for what, a week, and you're bashing someone who has been here for years? BTW if you think that BL said anything about all dollars being taxed at the highest tax bracket you need to take a reading comprehension class. Do youself a favor and don't speak until spoken to. Maybe someday you'll be as good as BL.[/quote]
This is only his most recent incarnation Spiffy.....
[/quote]
...yeah...I thought I recognized this one early on...fairly intelligent, but needs a refresher in common courtesy 101...welcome back, Dirk!
[quote=Spaceman Spiff]Hey Bobby - take the towel off of your head. We don't think like that in this country. You've been here for what, a week, and you're bashing someone who has been here for years? BTW if you think that BL said anything about all dollars being taxed at the highest tax bracket you need to take a reading comprehension class. Do youself a favor and don't speak until spoken to. Maybe someday you'll be as good as BL.[/quote]
It's not a towel. It's a sheet. I'm a sheethead.
Bobby hoe. Not a hockey playa, you are from the other side of town.
THe actual answer to this problem lies in an earlier post, but was quickly ignored. It is not the 1035 exchange, but the 1031 EXCHANGE.
This allows a "like kind" exchange, even on retirement accounts and so you should be able to transfer this over without incurring any kind of penalties at all. All the taxation is deferred.
http://en.wikipedia.org/wiki/1031_Exchange
[quote=awesome]
THe actual answer to this problem lies in an earlier post, but was quickly ignored. It is not the 1035 exchange, but the 1031 EXCHANGE.
This allows a "like kind" exchange, even on retirement accounts and so you should be able to transfer this over without incurring any kind of penalties at all. All the taxation is deferred.
http://en.wikipedia.org/wiki/1031_Exchange
[/quote]
Ummm.....no.
I'm a newbie, fire away!
I was wrong. 1035 Exchange is correct... **Smile**
1031’s are generally used to postpone paying taxes on real estate gains. For example, you invest $50K in a plot of land, five years later you sell that land for $200K, and put that $200K into an apartment building (within the allotted time frame). The tax on that $150K gain is not due until you sell the apartment building, IF you don’t do another 1031 and prolong the delay.
Awesome: a 1035 exchange, which can be done at any time during the annuity contract, will continue to defer the taxation on the gain in the contract, but there could still be substantial penalties from the existing contract for witdrawing during the surrender period.
1031 exchanges are for "real" property not insurance contracts. They can be a very good way to defer gains of appreciated commercial properties if done correctly.
[quote=awesome]I’m a newbie, fire away!
I was wrong. 1035 Exchange is correct... **Smile**[/quote]
...thanks for the laughs...
Can’t you just take the money from the real estate or the annuity and put it in a time-share and not pay any taxes or penalties? I went to this seminar at the beach recently…
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