Series 6
Variable Contracts - Annuity Distributions
Taxation
Withdrawals from an annuity are subject to ordinary income taxes on earnings. A minimum account value is usually required to qualify for certain withdrawal options. The insurance company may also require a minimum distribution amount and will usually allow only a certain number of withdrawals per year.
Withdrawals are deducted from sub-accounts as a percentage based on the proportional amount allocated to each account, unless the policyholder specifies otherwise. For example, if the annuitant has 23% in Sub-account X and 77% in Sub-account Y, withdrawal amounts will reflect this percentage, albeit at much lesser amounts.
Lump sum annuity withdrawals are taxed on a last in, first out (LIFO) basis, so earnings are withdrawn first and taxed as ordinary income, while any amount in excess of earnings is taken from the principal amount and is nontaxable. However, annuitized payouts are taxed differently:
Optional Features
Variable annuities sometimes offer other optional features, which also have extra charges. One common feature, the guaranteed minimum income benefit, guarantees a particular minimum level of annuity payments, even if your client does not have enough money in his or her account - because of investment losses, for instance - to support the level of payments. Other features may include long-term care insurance, which pays for home healthcare or nursing home care if the investor becomes seriously ill.
Withdrawals from an annuity are subject to ordinary income taxes on earnings. A minimum account value is usually required to qualify for certain withdrawal options. The insurance company may also require a minimum distribution amount and will usually allow only a certain number of withdrawals per year.
Withdrawals are deducted from sub-accounts as a percentage based on the proportional amount allocated to each account, unless the policyholder specifies otherwise. For example, if the annuitant has 23% in Sub-account X and 77% in Sub-account Y, withdrawal amounts will reflect this percentage, albeit at much lesser amounts.
Lump sum annuity withdrawals are taxed on a last in, first out (LIFO) basis, so earnings are withdrawn first and taxed as ordinary income, while any amount in excess of earnings is taken from the principal amount and is nontaxable. However, annuitized payouts are taxed differently:
- Each payment is considered one part principal (non-taxable) and one part rate of interest (taxable).
- Each payment is adjusted by an exclusion ratio, which is a ratio that describes the relationship between the invested amount and the total expected return under the annuity contract.
Optional Features
Variable annuities sometimes offer other optional features, which also have extra charges. One common feature, the guaranteed minimum income benefit, guarantees a particular minimum level of annuity payments, even if your client does not have enough money in his or her account - because of investment losses, for instance - to support the level of payments. Other features may include long-term care insurance, which pays for home healthcare or nursing home care if the investor becomes seriously ill.
comments powered by Disqus
Free Annual Reports
