Liquidating annuities

Annuities can be complex, and tax consequences aren't always clearly stated when you buy an annuity.Nevertheless, there are ways you can control your tax liability and make the most of the annuity contracts you own.Therefore, you'll pay tax on every dollar until you're only left with your initial investment.

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The rollover options that you have with IRAs and 401(k) plan money don't apply here, and the direct transfer is your only choice.

Still, the strategy is worth considering if your objective is to get a better annuity rather than getting out of annuities entirely.

Taking money early The other major tax consequence has to do with the retirement-related nature of annuities.

The IRS imposes the same penalties for early withdrawals from annuities that it does for IRAs and retirement accounts.

Annuities are a financial product specifically designed to address longevity risk by providing a predictable income stream guaranteed for life.

Although they are not a new concept, modern annuities adapt a proven retirement-planning tool to the modern economy, allowing individual retirees to choose an annuity suited to their individual financial situation, needs, and priorities.

Annuitized payments are divided into part principal and part earnings, with taxes on the earnings but none on the principal.

If you don't annuitize, then IRS typically treats withdrawals from annuities as being from earnings first.

The basic rules for annuity taxation The first question in evaluating the tax consequences of cashing in an annuity is what you mean by cashing the annuity in.

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