Common use of Potential Tax Implications With Annuities Clause in Contracts

Potential Tax Implications With Annuities. Although annuities generally allow your investment to be held on a i. Withdrawals from annuities, including partial withdrawals and surrenders, may be taxable. If you take a taxable withdrawal before age 59½, you may have to pay a 10% penalty to the IRS on the amount of the gain in your con- tract, in addition to your normal income taxes. ii. Taxable distributions from an annuity are generally taxed at the contract owner’s ordinary income tax rate and do not get the benefit of lower tax rates received by certain capital gains and dividends under current tax laws. iii. If an annuity contract is owned by a non-natural entity (such as a corporation, partnership, or LLC), the contract is generally not eligible for tax deferral. iv. The death of a contract owner (or in some cases, the death of an annuitant) may result in taxable distributions that must be made from the annuity contract within a specified period of time. v. Upon the death of the owner/annuitant of a contract, gains may be taxable to the beneficiary; the annuity assets may be included in the owner’s estate; there is no step-up in the tax basis; and annuity assets will bypass probate, un- less the contract owner’s estate is the named beneficiary or no beneficiary is named. vi. The tax-deferral benefit offered by annuities provides no additional tax benefit if they are held in tax-qualified accounts, such as an IRA, 403(b), or 401(k). Special rules governing annuities issued in connection with a tax- qualified retirement plan restrict the amount that can be contributed to the contract during any year. Please consult your tax advisor and consider all the tax consequences before purchasing an annuity.

Potential Tax Implications With Annuities. Although annuities generally allow your investment to be held on a i. Withdrawals from annuities, including partial withdrawals and surrenders, may be taxable. If you take a taxable withdrawal before age 59½, you may have to pay a 10% penalty to the IRS on the amount of the gain in your con- tractcontract, in addition to your normal income taxes. ii. Taxable distributions from an annuity are generally taxed at the contract owner’s ordinary income tax rate and do not get the benefit of lower tax rates received by certain capital gains and dividends under current tax laws. iii. If an annuity contract is owned by a non-natural entity (such as a corporation, partnership, or LLC), the contract is generally not eligible for tax deferral. iv. The death of a contract owner (or in some cases, the death of an annuitant) may result in taxable distributions that must be made from the annuity contract within a specified period of time. v. Upon the death of the owner/annuitant of a contract, gains may be taxable to the beneficiary; the annuity assets may be included in the owner’s estate; there is no step-up in the tax basis; and annuity assets will bypass probate, un- less the contract owner’s estate is the named beneficiary or no beneficiary is named. vi. The tax-deferral benefit offered by annuities provides no additional tax benefit if they are held in tax-qualified accounts, such as an IRA, 403(b), or 401(k). Special rules governing annuities issued in connection with a tax- qualified retirement plan restrict the amount that can be contributed to the contract during any year. Please consult your tax advisor and consider all the tax consequences before purchasing an annuity.