[gpk111]

Originally Posted by Gigi3000

I'm 63, cost basis $160000, gain $200000. Bank advisor offered indexed variable annunity, 10 year spread. Anyone familiar with these? I have no experience with annunities. Trying to figure out whether to take lump sum and just pay the $70000 tax bill or do the annunity. If I take the annunity I'd put it into index mutual funds. My situation is very simple...I have no income, lots of savings, no mortgage on home, no tax deductions. If take annunity, goal.would be income I guess. Not taking social security, maybe take at 65.or wait until 70...

Assumed fact pattern: You have inherited an annuity worth $360k with a $160k basis, so $200k is taxable. $160k is not taxable, assuming there is no estate tax.

Discussion #1: IMMEDIATE CASH. Take the tax hit and open bank account. Earn 0.5%. Complete safety. Tax hit is $200k times your incremental tax bracket. Maybe 15-20% if you have no base income. $200kX15% = $30k. $200X20%=$40k. Your arithmetic sounds off. Probably because you are not factoring in the non-taxable $160k. Annuity inheritances are taxed as ordinary income, not capital gains.

Discussion #2: CONSIDER PAYMENT OPTIONS. Talk to the existing insurance company and ask what your options are as a non-spousal beneficiary. You'll most likely find these options:
1. Cash (see above)
2. Partial payments not to stretch past 5 years if non-qualified and 10 years if qualified (this levels your taxes, since payments include both basis and earnings)
3. Possibly a conversion to an annuity which buys you lifetime income (Usually bad deals even if available to beneficiaries). Probably not available prior to paying taxes. Long shot, but worth asking about.

Discussion #3: CASH INVESTMENTS. Assuming you took the cash and paid the taxes, you are now facing investment decisions for the cash ($360k less say $40k of taxes = $320k). You can invest in stocks, bonds, annuities, or whatever you want, and none of those care what the source of your cash is. You can read thousands of threads on investments. Or you can consider Willie Nelson's philosophy: " I spend most of my money on whiskey and women.... and wasted the rest!" But I digress.
The point is that the source of your windfall has ABSOLUTELY NOTHING to do with your investment decision. The guy trying to sell you an annuity is confusing the issue. If YOU owned the annuity, you could roll it into another annuity via a 1035 exchange, but there is no way an inherited annuity can be transferred to you without paying taxes.

Discussion#4: MERITS OF ANNUITIES. I have done a lot of work on comparing annuities vs equity investments. I have opted for both. There are a lot of different annuity types. A pension is a type of annuity. So is a variable annuity with fees up to 4%. Don't listen to those who tell you to run as soon as you hear "annuities." Also don't listen to those who try to sell you annuities without explaining all the questions you may have or don't know to ask. ...and run from advisors who don't understand basic taxation law as it applies to inherited annuities.

PS If you're reasonably healthy, wait until 72 to tap your Social security, especially since you're got your inherited cash to fall back on.

[Gigi3000]

Originally Posted by gpk111

Assumed fact pattern: You have inherited an annuity worth $360k with a $160k basis, so $200k is taxable. $160k is not taxable, assuming there is no estate tax.

Discussion #1: IMMEDIATE CASH. Take the tax hit and open bank account. Earn 0.5%. Complete safety. Tax hit is $200k times your incremental tax bracket. Maybe 15-20% if you have no base income. $200kX15% = $30k. $200X20%=$40k. Your arithmetic sounds off. Probably because you are not factoring in the non-taxable $160k. Annuity inheritances are taxed as ordinary income, not capital gains.

Discussion #2: CONSIDER PAYMENT OPTIONS. Talk to the existing insurance company and ask what your options are as a non-spousal beneficiary. You'll most likely find these options:
1. Cash (see above)
2. Partial payments not to stretch past 5 years if non-qualified and 10 years if qualified (this levels your taxes, since payments include both basis and earnings)
3. Possibly a conversion to an annuity which buys you lifetime income (Usually bad deals even if available to beneficiaries). Probably not available prior to paying taxes. Long shot, but worth asking about.

Discussion #3: CASH INVESTMENTS. Assuming you took the cash and paid the taxes, you are now facing investment decisions for the cash ($360k less say $40k of taxes = $320k). You can invest in stocks, bonds, annuities, or whatever you want, and none of those care what the source of your cash is. You can read thousands of threads on investments. Or you can consider Willie Nelson's philosophy: " I spend most of my money on whiskey and women.... and wasted the rest!" But I digress.
The point is that the source of your windfall has ABSOLUTELY NOTHING to do with your investment decision. The guy trying to sell you an annuity is confusing the issue. If YOU owned the annuity, you could roll it into another annuity via a 1035 exchange, but there is no way an inherited annuity can be transferred to you without paying taxes.

Discussion#4: MERITS OF ANNUITIES. I have done a lot of work on comparing annuities vs equity investments. I have opted for both. There are a lot of different annuity types. A pension is a type of annuity. So is a variable annuity with fees up to 4%. Don't listen to those who tell you to run as soon as you hear "annuities." Also don't listen to those who try to sell you annuities without explaining all the questions you may have or don't know to ask. ...and run from advisors who don't understand basic taxation law as it applies to inherited annuities.

PS If you're reasonably healthy, wait until 72 to tap your Social security, especially since you're got your inherited cash to fall back on.

How are you calculating the taxes again(on lump sum withdrawal)? What does the $160000 cost basis have to do with it? Cost basis was already taxed, right?

[gpk111]

Originally Posted by Gigi3000

How are you calculating the taxes again(on lump sum withdrawal)? What does the $160000 cost basis have to do with it? Cost basis was already taxed, right?

Correct. Cost basis is not taxed. Gains on annuities are taxed as ordinary income.

[Gigi3000]

Originally Posted by will1546

Don’t worry about what the agent makes. Look for principal protection, low taxes on gains and if it meets youvr goals.

Apparently there's no low taxes on gains in annunities. Taxed at ordinary tax rate.

[joshgun]

Originally Posted by Gigi3000

Really? I don't know alot about taxes but I looked at the tax table for that amount and I saw 37%. There definitely is no other income. I sold a condo and am living off those proceeds. Thanks for your info

First, annuity income is ordinary income not a capital gain. Second, some amounts principal are excluded from income. Third, a quick google search shows three options, lump sum, distribution over 5 years or annuitizies amount over your remaining life. I don’t like annuities but from a tax standpoint this may be your best option. However, I think your first step like others have said is find a fee only planner. They can lay out your options and show you the risk/reward for each option with the tax impact.

[JustRita]

You need a fiduciary Financial Advisor. Flat fee.

[Cheryl Barrios]

Originally Posted by Gigi3000

I'm 63, cost basis $160000, gain $200000. Bank advisor offered indexed variable annunity, 10 year spread. Anyone familiar with these? I have no experience with annunities. Trying to figure out whether to take lump sum and just pay the $70000 tax bill or do the annunity. If I take the annunity I'd put it into index mutual funds. My situation is very simple...I have no income, lots of savings, no mortgage on home, no tax deductions. If take annunity, goal.would be income I guess. Not taking social security, maybe take at 65.or wait until 70...

Just making sure I understand this correctly, you have stock and the cost basis was $160,000; your gain was $200,000; so the value of the stock right now is $3i60,000 - correct. I think you taxes on a $200,000 gain with no income your gain would be taxed at 15% or $30,000 - not $70,000. If I'm misunderstanding and the current value is $200,00 - your gain would only be $40,000 and your tax - $6,000.

Either way, I would not get an annuity. Keep it in stock and don't cash it in all at once. Cash the newest - as long as you've had it at least a year. Only take out what you need AND only pay the tax on what you take out. If you're playing it safe because you made a lot of money in a short period of time and it's at least a one year investment - take it out, pay the tax, and thank the powers that be for the big gain.

[Gigi3000]

Originally Posted by retiredguy123

It's pretty simple. The bank advisor wants you to move the money to another annuity so he can make a large commission. Even if you spread the income over several years, you will still pay the tax. You may save a small amount in taxes by delaying the income, but you will also save money by avoiding the annuity fees and other restrictions.

I would suggest that you ask the bank advisor to give you a copy of the "entire" annuity contract, not the sales brochure. He will probably refuse to provide it. But, if he does give it to you, it will be a very large document that you will not understand. I have never been able to get an annuity salesperson to provide the contract they are trying to sell. I had one hang up on me when I asked. Their sales policy is to make you buy it before you can read it. Absurd.

I was wondering what the terminology was for what I needed. Entire annunity contract. I'll see about getting that and maybe take it to my CFP

[Gigi3000]

Originally Posted by glennl0159

I work in the insurance/investment world. Because of the SECURE Act and that it is a Inherited annuity you will have 2 options.
If it was an IRA account you have 10 years to pay the taxes you decide how all now, a little each year, or all at once at the end of the 10 years.
If it was non-IRA, you have up to 5 years to pay the taxes either all now or equally over 5 years.
No matter what it is taxable ordinary income and your tax rate that goes with it.
If you have no current taxable income as you mentioned it would make much more sense to liquidate it over time and pay at lower tax rates as this would be your only income.

It's a non-IRA annunity. Do you know if the 5 year thing is just stretching the amount in the existing annunity or if I would need to take out a whole new annunity?

[Eg_cruz]

Originally Posted by rjm1cc

Ask what the fees are and penalty if you take the money out of the new annuity in a year or two. I do not think you will like the answer.
I think you want to look for someone to help you make a choice. I would try a few CPA firms since they do not sell annuities and ask that the person works with annuities as they probably do not for most.
An immediate annuity is what you want for minimum cost and maximum payout to you.
You mentioned the work bank. In my opinion never buy investments from a bank. Annuities should not be sued as an investment.
Shop around for an immediate annuity and let the salesman tell you what is wrong with the proposed annuity. If you want monthly income then go for the immediate annuity.
If you go for an immediate annuity let the selling company transfer the old annuity from that company to you. You do not want to get any of the proceeds as it could cost you taxes.
If you want to cash out you can probably take out what ever dollars you want. Could spread over several years. Note the first 200000 will be taxed as income and your income will be a lot higher so your tax bracket will also be high. You could have say 25 to 30% Federal tax (guess) plus state tax.
You have a good start researching before you start talking to professionals.

Disagree immediate annuities are not paying anything…….just put the money in the bank and get better interest

[Eg_cruz]

Originally Posted by Ameliafay

Parady Financial has hundreds of clients here in The Villages. You really should talk to them before making a decision.

That one I would stay away from…..far away

[rjm1cc]

Originally Posted by Eg_cruz

Disagree immediate annuities are not paying anything…….just put the money in the bank and get better interest

I mentioned it in case the OP wants security of monthly income, although not inflation protected, and low fees.

The benefit of an annuity is if you live until 110 you still get paid even though you long ago got all your money back. Thus your health should be considered.

You are correct that an annuity is not a good investment product but it can be good for those that want security and do not want to rely on investment results.

[gpk111]

Annuities can be a useful part of a portfolio. Statistically, they will not beat the raw market over the long term, since you pay for marketing and risk mitigation.

They are good for three things:
1. They beat CDs hands down. "MYGA" type product.
2. A pension type payment stream. You buy the security of not outliving your money. Withdrawing 4% annually from an equity account will not guarantee that, no matter what Ken Fischer (with whom I have accounts) says. "SPIA" or "FIA" with income provision
3. It can mitigate or eliminate downside market risk. The price you pay is reduced upside opportunity. "FIA"

Interesting to see the range of opinions. Some informed. Some not so much.

[retiredguy123]

Originally Posted by gpk111

Annuities can be a useful part of a portfolio. Statistically, they will not beat the raw market over the long term, since you pay for marketing and risk mitigation.

They are good for three things:
1. They beat CDs hands down. "MYGA" type product.
2. A pension type payment stream. You buy the security of not outliving your money. Withdrawing 4% annually from an equity account will not guarantee that, no matter what Ken Fischer (with whom I have accounts) says. "SPIA" or "FIA" with income provision
3. It can mitigate or eliminate downside market risk. The price you pay is reduced upside opportunity. "FIA"

Interesting to see the range of opinions. Some informed. Some not so much.

Your item number 3 is often misunderstood and not explained properly by the annuity salesperson. The downside market risk is only eliminated if the market is lower over the entire cumulative time period that you own the annuity. Many people think that, if the market goes down 25 percent in one year, they don't lose money that year. But, it is not calculated on a yearly basis. So, if you own the annuity for 20 years, the only way you benefit from the market downside guarantee is if the market is down over the entire 20 year period, which rarely happens. Also, paying management fees, surrender charges, etc. are not considered losing money.

[Gigi3000]

For those who like puzzles.....


Ok, I have decided to take it lump sum. Here's why. I don't like how shady these annunity companies are with giving out the annunity contract before hand for a complete review. It doesn't appear I'll pay more than $70,000 in taxes for 2021 year and maybe even less..and #3 is, I'm losing sleep over this and it's not worth it. And # 4 is, I have 403b inherited IRA($76,000, qualified) that the distribution has all ready been taken for 2021 so I can cash it out in 2022. I
appreciate everyone's input....I would rather live frugally to make up any loss than deal with wondering what they're doing to my money.