September 25, 2017
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What Are The Tax Consequences Of My Current Annuity?

Lisa N. Clarke -- Clarke Perlin
Lisa N. Clarke -- Clarke Perlin's picture
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August 8, 2017

Do You Have Options?

Although annuities have existed in their present form for only a few decades, the idea of paying out a stream of income to an individual or family dates back to the Roman Empire. One of the early recorded uses of annuities in the United States was by the Presbyterian Church in 1720. The purpose was to provide a secure retirement to aging ministers and their families.

Today, there are literally thousands of different annuity products available in the United States. As the annuity industry has grown, the amount of options for investors has grown substantially, especially for those who have owned a contract for more than five years.

So, let’s start with the basics:

What is an annuity? An annuity is a contract between you and an insurance company.

Are there different types of annuities? Annuity contracts can be divided into two different types: immediate and deferred. With an immediate annuity, you can convert assets into income and start receiving income payments right away. With a deferred annuity, assets accumulate, tax-deferred, until withdrawals are made, usually during retirement.

What are some of the advantages of an annuity? Tax deferral has always been the main advantage of an annuity, but modern annuities offer many more options than just tax deferral. Some other advantages available are annuities that have guaranteed minimum death benefits, income benefits, withdrawal benefits or accumulation benefits.

As a certified public accountant (CPA), I am asked some of these questions by clients that are current annuity holders:

What are options available to me for my current annuity contract? Can a stream of income be taken from my annuity? What are the tax implications? Can you upgrade or move it to another annuity company with better modern-day benefits? How does this affect my Social Security income? Can you use your current annuity for long-term care? Can you take a tax loss on your variable annuity?

Clarke Perlin LLC is a full-service CPA firm specializing in individual taxes, business taxes, CFO consulting, and financial mediation and analysis. For more information, visit www.cyacpas.com.


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