Assume I am over 60 but under 95. I am looking to withdraw my annuity over a given time, say 10 years, but the money used to initiate the annuity and deposits (the principle) were all paid with after-tax dollars. What will I have to do to ensure that I do not have to pay taxes on this portion of my withdrawal again??
I am actually asking this question on behalf of another, in case that was not already apparent.
2006-09-07 15:58:04 · 5 answers · asked by Tony 2 in Business & Finance ➔ Insurance
You're in luck. I'm in the annuity business. When your principal in an annuity is post tax dollars, whatever portion of your annuitized payments is return-of-principal is not taxed. Whatever portion of it is earnings or gain on the principal is taxed unless you have a Roth Annuity (typically created by opening a Roth IRA, then using that as a rollover vehicle to open the annuity, in which case all the proceeds are tax free when you annuitize).
As with most retirement vehicles, they're designed to have payments begin after age 59 and 1/2. If you begin receiving payments prior to that, the tax and penalty situations are different than what I described above.
Summary:
1. Wait till at least age 59.5 to begin receiving payment (which you are).
2. If it's a standard annuity, opened with after tax dollars, the payments received will only be partially taxed. The portion of payments that are a return of principal are not taxed, but the gains are. After all the principal is returned, the entire payment is gain and therefore taxable.
Essentially you will not have to pay the tax on the already-taxed principal again.
2006-09-07 16:21:39 · answer #1 · answered by Bright Future Penguin 3 · 1⤊ 0⤋
Do you already have the annuity? If so you need to contact the company you got it from and make sure they know that you have already paid taxes on this money because you do not want to have to pay taxes again on it. They should be able to clarify this for you. It should be specified in the contract so they know how it is to be distributed to you. One thing be sure and look at as far as speading the payments out, there are several ways you can elect to do it but be sure it is where the money is left to your benificiary if that is your desire because there is one particular way it is distributed over the period of time but when you die that ends the annuity. I hope this helps answer you questions.
You really need someone qualified as financial advisor to give you the best help. You may want to ask a friend or someone who knows a reputable person. Good luck to you.
2006-09-07 16:51:34 · answer #2 · answered by Patti Z 2 · 1⤊ 0⤋
It should be documented in the annuity as to what types of funds were allocated to it. Best bet is to talk to the institution thats holding it to see what the local and federal reporting requirements are and what types of documentation they can provide to you. If they are no help then any tax preparer should be able to help you out.
Pre or post-tax funding is something that is very spelled out at the get go.
Now if pre-tax funds were intermingled with it then it can get quite complicated but shouldn't be anything your average tax preparer couldn't help you with.
2006-09-07 16:10:35 · answer #3 · answered by joe b 3 · 1⤊ 0⤋
Although the above answers are correct, simply stated you don't need to worry about it. The insurance company will send you a 1099 form each year indicating the amount that is return of principal and the amount that is earned interest. Only the interest is taxable.
2006-09-08 01:38:31 · answer #4 · answered by deep5223 4 · 1⤊ 0⤋
that's determined by your total tax image and the reason behind the withdrawal. Penalty may or may no longer keep on with. you need to sit with a approved & registered tax preparer for a sparkling and comprehensible answer.
2016-11-25 20:03:38 · answer #5 · answered by Anonymous · 0⤊ 0⤋