Info iconThis preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon
FEDERAL TAX CONSIDERATIONS FOR LIFE INSURACE AND ANNUITIES When money is withdrawn from the annuity during the accumulation phase, the amounts are taxed on a last in first out basis (LIFO). Therefore, all withdrawals will be taxable until the owner's cost basis is reached. After all of the interest is received and taxed the principal will be received with no additional tax consequences.During the accumulation period in a non-qualified annuity, what are the tax consequences of a withdrawal? Taxable interest will be withdrawn first and the 10% penalty will be imposed if under age 59 ½. Which of the following describes the taxation of an annuity when money is withdrawn during the accumulation phase? Withdrawn amounts are taxed on a last-in-first-out basis With a rollover, there will be a 20% withholding and the participant has 60 days to reinvest it an IRA to qualify as a tax-free rollover. The 20% withholding of funds can be avoided if the distribution is made directly from the first plan to the trustee or administrator/custodian of the new plan. This method is called an IRA direct transfer Distributions from a Roth IRA are not included in taxable income; however, qualified distributions cannot be made prior to the fifth year of the account's existence, or until the owner reaches age 59½. When premiums are paid with after tax dollars, the death benefit is generally not subject to federal income taxation. Death benefits payable to a beneficiary under a life insurance policy are generally Not subject to income taxation by the Federal Government. The cash value of a surrendered policy is only considered to be taxable as income if the cash value exceeds the amount of premiums paid for the policy Which of the following is true of Section 1035 Policy Exchanges? It is an IRS Code which permits like kind exchanges of property, It is typically used when exchanging or replacing a less competitive life policy with a more competitive life policy., It requires an absolute assignment of the existing policy to the
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Image of page 2
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 11/22/2010 for the course LIFE INSUR 245 taught by Professor Knowles during the Spring '10 term at El Centro College.

Page1 / 3


This preview shows document pages 1 - 2. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online