https://grreid.com/ G.R. Reid Blog G.R. Reid Associates LLP - G.R. Reid Wealth Management, LLC - G.R. Reid Health Management, LLC - G.R. Reid Insurance Services, LLC - G.R. Reid Consulting, LLC - Woodbury, New York - Great Neck, NY

A

A

A

News

Our news articles are posted on a regular basis to give our clients relevant and timely information about matters pertaining to our financial services. Browse through our current and archived articles to learn more.

Financial & Wealth :: How Are Annuities Taxed?

One of the most attractive features of an annuity is its tax-deferred status. Generally, you won’t pay any income tax on the interest or earnings until you start taking withdrawals in retirement (age 59½ or later).Qualified and nonqualified annuities are taxed differently. Qualified annuities (such as annuities in an employer-sponsored retirement plan or an IRA) are typically purchased with pre-tax money, so withdrawals are fully taxed as ordinary income. It’s important to understand that purchasing an annuity in an IRA or an employer plan provides no additional tax benefits than those available through the original tax-deferred retirement plan.

Qualified and nonqualified annuities are taxed differently. Qualified annuities (such as annuities in an employer-sponsored retirement plan or an IRA) are typically purchased with pre-tax money, so withdrawals are fully taxed as ordinary income. It’s important to understand that purchasing an annuity in an IRA or an employer plan provides no additional tax benefits than those available through the original tax-deferred retirement plan.

Annuities purchased with after-tax money are taxable upon withdrawal, but only the earnings are taxed. Nonqualified annuities bought after August 13, 1982, are taxed on a Last In, First Out (LIFO) basis. This means that as you take withdrawals, the accrued interest will be the first money taken out and taxed as ordinary income. After the interest has been paid, the initial investment amount will then be distributed without any further taxes.

Most annuities have surrender charges that are assessed during the early years of the contract if the contract owner surrenders the annuity. In addition, if the contract is surrendered before age 59½, you may be subject to a 10% federal income tax penalty.

 

The information in this article is not intended to be tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek tax or legal advice from an independent professional advisor. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. This material was written and prepared by Emerald. © 2012 Emerald Connect, Inc.

 

George G. Elkin and Jason Reid Saladino are Registered Representatives offering Securities through American Portfolios Financial Services, Inc. Member: FINRA, SIPC. Investment Advisory products/services are offered through American Portfolios Advisors Inc., a SEC Registered Investment Advisor. G.R. Reid Wealth Management Services, LLC is not a registered investment advisor and is independent of American Portfolios Financial Services Inc. and American Portfolios Advisors Inc. Independent Portfolio Consultants is an independent financial consulting firm and is not affiliated with American Portfolios Financial Services Inc. and American Portfolios Advisors Inc. American Portfolios Financial Services Inc. and American Portfolios Advisors Inc. does not offer tax advice. Please consult with your tax advisor.

 

 

Comments are closed.