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If i have an Annuity and i die will there be any income taxes due by the beneficiary i choose? |
If i have an Annuity and i die will there be any income taxes due by the beneficiary i choose? Wow Im a little worried about some of the advice you received. An annuity is a policy with an insurance company that allows you to protect your money from probate, and yes it passes directly to your beneficiary within 7 days after the insurance co is notified. Unfortunately too many people give their opinions about annuities when they have no idea what they are and why they are great retirement/estate planning tools. Not to mention that Annuities pay higher interest rates than bank CD's and money markets, and Fixed annuities don't lose your money like the stock market and mutual funds. Good for you for having an annuity, now that I have shed some light on what they are. The answer to your question is YES. Just like any investment, you will not avoid paying taxes on your annuity. If it is Non Qualified Money, the taxable portion will be on the interest you have earned during the course of having the annuity policy. If it Qualified money like an IRA the entire amount will be taxable. The insurance company will be happy to take the approximate taxes right off the payout amount to help your beneficiary, or they can elect to pay it at the end of the year. Estate and inheritance tax only effect a small percentage of Americans, so this probably won't be an issue for you. Keep in mind that if this is infact in a Fixed Annuity and Not a Variable annuity, your interest has been compounding over the years tax deferred. That gain is significantly better than you would have gotten in a CD, paying taxes on it every year. Good for you. Make sure you keep that money in an annuity, and that you are getting a FIXed interest rate, no in the stock market. SAFETY Yes. There are inheritance and estate takes that will be due, depending on what State you are in and the amount of money. But you can also create a trust fund and have the inheritance taxes, if any would be due, paid from the trust. But in my final comment, always contact an attorney for advices relative to your state. To the above response I would contact an accountant before a lawyer. This is a complex question and there are complex answers varying on where you live. But to just give an answer, yes there will be some taxes. There are ways around most of them. Contact an accountant. Unfortunately an annuity is subject to every tax there can be. And you get to pay a high fee to buy it. The fair market value of the annuity would be subject to estate tax if your estate value is high enough. If your state has an estate tax and/or an inheritance the annuity will be subject to it. If you take out as an annuity part of what you take out is subject to income tax as ordinary income. If you die and your heirs take out funds they are subject to income tax on the income portion. An annuity can never lead to a long term capital gain taxed at a favorable rate. The increase is always ordinary income. You would be much better off with a good mutual fund. The mutual fund with distribute dividends and capital gain each year, subject to a 15% federal tax rate. When you sell the fund you will have capital gain taxed at 15%. And if you die and pass it to heirs they will receive a step-up in tax basis and never pay the capital gains tax. This is a much better deal. ordinary income taxes will be due. if it is an ira, your heirs can stretch the payments out over their life expectancy and minimize the taxes. only after hearing all the facts of the situation would i be able to recommend any specific annuity. there are pros and cons to any investment I don't understand how you could have an annuity with a beneficiary. An annuity means you get paid monthly or quarterly payments until you die. Annuities are sold and run by life insurance company. Life insurance benefits are not taxable income to beneficiaries. |
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