Inheriting non-spousal annunity
 

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...

I would never buy an annuity. The advisor is recommending it because they want to make a commission on your money that will be about 10 percent of the cost. So, if you invest $360,000 in the annuity, the advisor will make about $36,000. I very nice pay day. Don't do it without doing a lot of research on annuities. They are almost never a good investment.

On a $200,000 long term capital gain, the tax should only be about $30,000, which is 15 percent, unless there are other circumstances.

I’d take the money, run and stay out of the stock market.

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

I would talk to a fee only financial adviser.

Yeah, I've read that the market is suppose to take a dive. Banks removing lines of credit etc. I'll probably take lump sum if only have to pay $30000 in taxes.

OK, a commercial finance manager here, and this board is not the place to find the best answer for your particular situation. Please find a fee only, independent CFP, and ask him to build you a model of your cash flow versus your assets and your tax situation. Living off of assets versus living off of income is not the best situation

finance guy who wants to get his CFP

[QUOTE=CoachKandSportsguy;1990414]OK, a commercial finance manager here, and this board is not the place to find the best answer for your particular situation. Please find a fee only, independent CFP, and ask him to build you a model of your cash flow versus your assets and your tax situation. Living off of assets versus living off of income is not the best situation

finance guy who wants to get his

That seems extreme to just get a tax question answered. Also I'm staying liquid to possibly buy a small farm in the next year or two. Monthly expenses are only $1200 mo currently.

[QUOTE=Gigi3000;1990445]You are dealing with a significant amount of money dont you want answers from people who have a background in finance and accounting?

You're right. I looked at ordinary income but this is long term capital gains. Do you know if you pay short term gains inside of an annunity?

[QUOTE=Stu from NYC;1990449]I thought I might at one time but I have lots of time to mull this over and I don't see my situation as all that difficult. Not currently anyway. Might be something I'd do in a year or so tho. Plus I want to learn and this is the best way but I might take some lumps

Any income that you make in an annuity and withdraw will be taxed as ordinary income. That is one of the major disadvantages of annuities that many advisors neglect to tell you when they sell it to you. They claim that you are investing in the stock market but you don't get the advantage of the lower capital gains rate that you would normally receive outside of an annuity. But, all short term gains (less than a year) are taxed as ordinary income. So, to benefit from the lower capital gains rate outside of an annuity, you need to hold the investment for at least one year.

I would seriously consider just paying the capital gains tax and invest the money in a conservative portfolio of Vanguard index mutual funds. 30 percent S&P 500 Index Fund, 30 percent Short Term Bond Index Fund, and 40 percent money market fund. Then, do some independent research on investing before making any more financial decisions.

So I'm back to paying $70000 tax if take lump sum??

It's possible, based on the type of annuity. I would ask a tax preparer to calculate your options for cashing out the annuity and paying the taxes immediately, or if you can spread the cash payments over a few tax years and maybe reduce the tax payments, based on your marginal tax rate. But, I would want to cash out the annuity and reinvest the money instead of buying another annuity. Whatever taxes are owed, they can only be delayed, but not avoided. My opinion. Good luck.

I'm familiar with Vanguard and index funds. Good suggestion. I have about 15% of my portfolio in VTSAX. I'm pessimistic about the market. Any other recommendations in place of the S&P 500 index fund?

I have a small percentage invested in the High Yield Bond Fund, which is paying about 3 percent and invested in low quality corporate bonds. It has been my best income producer. But, I am afraid to put a lot of money into bonds because, if interest rates go up, the bond values will go down faster than stocks. So, if you don't want to be in stocks, you don't have many choices. I would definitely stay away from bond funds that have an average maturity of more than 10 years. Very risky if interest rates rise.

I’d go with the small farm. A tangible asset is the best investment with the financial mess out there. At least you can put food on your table.

Right on long term bonds. Ok..thanks for the info

My thoughts exactly. I'm hoping real estate prices will drop a little although Dave Ramsey says they won't.

Farm prices are high because farm products are high.

I don’t think prices will drop much either, not with over a million people pouring over the border in the first half of the year. Housing is being squeezed tremendously. I’m also reluctant to take suggestions from people with their money in the overvalued stock market. I personally feel they’re looking to prop up of their investment and not providing unbiased opinions.

So, anyone who has some of their money in stocks cannot offer an unbiased opinion? Seems a bit of a stretch. Almost every financial advisor recommends stocks as part of anyone's balanced portfolio.

My financial advisor (who hates paying taxes) rolled my inherited annuity into an annuity at Lincoln Life. There were several options there. I have it setup to generate a monthly taxable income with a life insurance component for my wife or other beneficiaries.

I paid no tax on the rollover but I do pay income tax on the monthly income. I have been taking these distributions for two years now and there is more in the annuity than when I started.

Others may disagree, but for me this is perfect.

Do you really think people/financial advisers highly vested in the stock market would give you any advice other than that? You may get unbiased info from an economist. And it is very likely capital gains may soon take a bigger tax hit to prop up our wobbly economy. It seems stretchy to me to think otherwise.

If you opt to gamble in the market OP, at the very least use a fiduciary advisor.

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.

Listen, i am a CFO and I would not answer your question without asking you a lot of other questions. Don’t get financial advise from the internet.

Call Blackston Financial and talk to one of their fiduciaries. Stay away from financial advisors or stockbrokers. I've done well by Blackston. Just see what they have to say, and see what they offer. No pressure from them, just good, honest advice.

Sloooooow down -- and take a deep breath. When coming into money, it is best to take your time and learn what you can. Never buy anything that you do not understand.

Of course, you are not going to take financial advice from a bunch of strangers on the internet. But, if I were you, I sure would not be taking advice from a bank advisor. Any advisor is in business to sell. They are not doing charity work. But I am particularly not a fan of bank advisors -- based on stories I have heard from others, including a couple of friends who worked at banks.

If I were you, I would first find a good CPA. (A couple of other posters here have said that, too.)

Your first issue is how to handle tax implications and how to minimize the hit. I think the SECURE Act (1/01/20) might have made some changes to the tax law as it affects inherited annuities. There could also be the possibility of a stretch to help with taxes.

I have done only cursory reading on the SECURE Act and on inherited annuities. But I am not in your situation. Give these things a Google. I think Kiplinger might have some good articles that are not too involved but can help you start to understand what you're in for.

Sometimes we have to get to the point of looking for answers by first understanding what our questions should be. Get yourself some of the vocabulary of taxes and find that CPA and learn what to do to be able to keep as much of your money as you can. You have a lot of things to figure out. If I were you, I would not buy into any investments right away. While it can be painful to sit on cash in the bank with hardly any interest, it can also let you sleep at night. (I give all investments the sleep test.)

Your idea of buying a small farm sounds like it could be something you have thought about for a long time. My assumption is that you are not thinking of a huge operation but of several acres, zoned agricultural, where you can pursue whatever it is you want to do on your very own land.

If that farm is your dream and you can make it work, there is nothing wrong with sitting on cash until you decide for sure what to do.

I am not a financial advisor, nor do I want or pretend to be.

But I have been at it for our own purposes, for a long time.

I do not pretend to always win or to be making a killing in the market. I never tell anyone else what stocks to buy.

My investment and tax vocabularies are limited to just the things I need to know. (Btw, Investopedia is a good online source for defining and explaining any investment terms you do not understand.)

I believe in keeping a moat of cash around stock investments.

I also believe that it is important to never get yourself into a position where you have to sell stock to pay taxes.

Do not let some "advisor" envelop you in smoke and mirrors language to try to make you feel like they know a whole lot of stuff that you don't. If you decide to go with an advisor, interview several. But, for now, think about finding a CPA and figure out what to do about the taxes. Then think and think and think and then proceed.

I wish you the best.

Boomer

PS: Advisors, for the most part, can now brag about big returns. This old bull market has been running for a looooong time. I think my dog could have been getting impressive returns for the past decade or more.

That is wrong……they don’t make 10%
Why you roll into a new annuity because he can spread the taxes over the years. FYI annuities are not long term gain they are tax as ordinary income. Maybe you should not advise people on what you are not sure on.
There are a lot of good annuities they can look into.

Disagree 100% regarding annuities.

No reason to close it and pay the taxes. There are a lot of good annuities out there.
Quick tip: be careful of variable annuities they have a lot in fees. Don’t buy a Fixed Index Annuity and put riders on them again because of the fees.
Your best bet is a simple Fixed Index Annuity because you are inheriting the annuity you will have to take distributions every year which will help with spreading the taxes out over the years.
Don’t get an annuity with a bonus either, nothing is for free when you get a bonus your returns over the years will be a lot less then a annuity without a bonus.
Don’t get annuity with more then 10 yr surrender (because you are younger then 65 you can get one for longer) in fact the 7 yr annuity have higher returns.
Feel free to email if you have any questions.

$30k is wrong
You will be taxed as ordinary income. So take your income today and add $200k and that is what you will pay tax on. Ask yourself how long will it take to make that money tax money back with the funds I have left over.
$200,000 - taxes 28%(est) $56,000 balance $144,000…….how long does $144,000 take to make $56,000

It’s not Long term capital gains……it’s ordinary income

Always seek financial guidance from a or several finance professional not a message board!

The only people who like annuities are the salespeople. You can go to any accountant and for about a hundred bucks an hour you can discuss your own financial disposition. I don't know why you are not taking social security, but I hope if you're 65 you're on Medicare and have part d at least . And also two or three opinions and spend a few hundred bucks with both the accountant and a tax attorney

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.

Get a fee only Financial planner
 

The previous responses are correct to tell you to get a fee only financial planner i.e. one that does not sell any investment products. The main reason is this person will look at the specific products your money is currently in and they will also look at all avenues for inheritance that could reduce your tax outlay. They will not be looking at a specific product to put your money in that makes them a commission or only what their bank sells. Can't stress enough that they will look at your entire situation and will ask what your goals are in the future to give you the best strategy to make those goals a reality. An example would be giving you a recommendation on when taking social security is best to meet those goals. It might cost you $800 or $1,000 upfront for a good advisor, but they can save you thousands on future taxes or mistakes picking the wrong investment products to meet your goals.
We interviewed a few advisors and talked about what we wanted to get out of the process and got an overview of what they did, what to expect, fees, etc. Once we were set on an advisor, then we had to bring them statements and details of accounts like the annuity you speak of inheriting. After they had our information, it took them about a week and then we met again to go over what they came up with. The binder of information was a couple inches thick and provided detailed analysis from current age to end of life expectancy. It was well worth the $1,000 we spent as it kept us from making some mistakes that would have cost much more in returns and taxes over the following few year. Hope this helps.

If it’s a 10 year guaranteed annuity, if you died before you are 73, your spouse would only get the amount that would have been paid through the ten yers and the rest will be forfeited, however, if you lives to be 93, you will receive lots more than it is now if it’s a lifetime annuity. It will be steady income you can count on every month though. Make sure the payout interest rate is over 7 or 8%.

Senior Financial Security
 

You absolutely need to check out a Certified Financial Planner. We started with Senior Financial Security (who also work with BucketListWealth) and they first asked us what is our goals. Their vision is, "Helping seniors and retirees protect their assets from stock market downturn, nursing homes and Uncle Sam."
Since then our investments have only gone up. They are very personable and Jean Ann Dorrell is also a Certified Estate Planner, author and has been seen on Fox News, reutors, Wall Street Journal and many more. Honestly, you can't go wrong just talking to her.

Her facebook page is Senior Financial Security and a web site that you can schedule an appointment on is, senfinancial.com