Annuity and Tax Consequences
Non-qualified or "after tax" monies used to
purchase annuity income have something qualified plans do not. The
Exclusion Ratio or amount of the
annuity payment that is not subject to
income tax since it is considered to be a
return of not only interest but of original
principal "cost basis". The cost basis is
the original investment and is not subject to income tax when distributed
from a Personal Income Annuity.
The exclusion ratio is determined by the amounts of principal and interest
being returned. An account with a large amount of credited interest will
have a lower exclusion ratio than a mostly principal payout.
For example, if a 60 year old male with
$100,000 and a cost basis of $50,000 purchases an annuity income for life
the payment would be $582 per month of which 29.6% would be tax free.
If that same 60 year old had a cost basis of $100,000 the payment is still
$582 per month however, the exclusion ratio would be 59.2%.
Guaranteed Lifetime Income Options
Installment Refund Annuity
This option provides a guaranteed income for life. The total of the
payments received will never be less than the total of the funds paid to
purchase this option or the (principal). If you die before receiving at
least that amount, your beneficiary will continue to receive payments until
the full amount is repaid.
Cash Refund Annuity
Life Annuity With Period Certain
This option provides a guaranteed income for life plus if death occurs prior to the end of a specified period (5 to 50 years)
will be transferred to the beneficiary for the remainder of the period,
ceasing at the end of the chosen period. You can guard against the effects
of inflation by annually increasing the payment you receive at a compound
rate of 1% to 7%.
Joint and Survivor Annuity
This option provides a guaranteed income for as long as either joint
annuitant is alive. When either annuitant dies, payments continue to the
survivor and can be a partial percentage, such as two-thirds, or a
full 100% of the payments received when both were living. If you select the
Joint and Survivor Annuity option, you may also add a Period Certain option
of five to 30 years.
Joint and Contingent Survivor Annuity
This option provides a guaranteed income for as long as you or your joint
annuitant lives. If you die first, the joint annuitant will receive 50% of
the payments you received while living. If the joint annuitant dies first,
you will continue to receive 100% of the payments for as long as you live.
Period Certain Annuity (non-lifetime)
This option provides a guaranteed income for a time period you specify
(5, 10, 15 or 20 years). If you die prior to the end of this period, your
beneficiary may continue to receive payments for the remainder of the
period. You may also be eligible for the Nursing Home Waiver. If so, and if
you become a nursing home resident for 30 days or more, you may receive a
lump-sum payment equal to the present value of your remaining guaranteed
The nursing home waiver is not available in
all states. These features are not available on any of the guaranteed
lifetime income options at the left. Exercising these options may represent
taxable events with or without additional tax penalties.
To learn more about
Immediate Annuities call the experts
at FSD toll-free (800) 373-9697,
Email us or
Annuity Quote Request Form