It's Tax Time!!!

I guess I jinxed us by saying “hooray for sun” last week – less than 48 hours later: 18” of snow!!

IT’S TAX TIME!! HOW ARE ANNUITIES TAXED?

Almost all annuities are tax-deferred, meaning they are taxed at time of withdrawal, in a variety of ways. Fortunately, they grow at a compound rate -- which means higher growth -- but eventually Uncle Sam wants his turn.

Simply, if your annuity is an IRA, then 100% of the amount withdrawn is taxable as ordinary income, at your specific tax rate. If it’s not an IRA, then the gain is taxable under the “last-in, last-out” guideline. For example, $100,000 of a Non-Qualified (non-IRA) plan, at 5% growth in year 1, would be worth $105,000. Let’s say you decided to take $10,000 out of your plan, you would only be taxed on the $5,000 “gain” (the last amount gained). The original $100,000 was already taxed.

It gets a little more complex if you have an Immediate Annuity, or you annuitized an older annuity plan. The Non-Qualified annuity payments are part principal and part taxes spread out over the term of the payment; e.g. with a 10 or 20 year payout, your annual 1099 tax form will be spread out over the 10 or 20 years. The 1099 will give you the breakdown that can be explained by your CPA. You should always consult your accountant for ALL of your tax questions, since everyone’s situation is different.

Thank you all, and “SAFE” investing!

Jim

QUOTE OF THE WEEK:

“We read that we ought to forgive our enemies; but we do not read that we ought to forgive our friends.”

--Cosmus, Duke of Florence