Solutions 4 Financial Independence: 07/24/18

Published: Jul. 19, 2018 at 3:42 AM EDT
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Question: I have an annuity and I want to roll it over to an investment for growth. Will I have to pay taxes on this change?

Answer (John Halterman, Beacon Wealth Management): “Let’s clarify this, the first thing is that an annuity is actually an investment. It is not about the annuity as much as the tax status of the annuity. What I mean by that is it could be nonqualified money or it could be qualified money, such as an IRA.”

Question: Do you have an example of how that would work?

Answer (John Halterman, Beacon Wealth Management): “Let’s say she has a nonqualified annuity, what that basically means is she took probably after-tax money, put it into this account. Let’s say it’s $100,000. So now if it’s $200,000 and she wants to take it out and put it into investment, that is an actual taxable transaction. So the $100,000 of gain is going to be taxable to her to go from a non-qualified annuity to another type of nonqualified investment, such as a mutual fund or a brokerage account.

If that money is in IRA, she has an IRA annuity. That means somehow that money got some special tax treatments, pretax deduction and she wants to move it or transfer it to another IRA. And in that IRA she wants to choose any various type of investment, well now what that becomes is an IRA to IRA transfer. Because of that she will not owe on the transfer, just on the distribution.

Definitely tax law is a big deal because if you don’t know it, you’re going to have to pay. I hate to say it.”