How Is A Non-Qualified Annuity Taxed? - YouTube

Stan the annuity man here. Welcome! I want to explain this shirt. People like,

"Hey, what's the fist for?" Remember the Jack Nicholson movie with Tom Cruise?

Remember that one with you can't handle the the truth all this stuff? Look at

this. That's what I'm talking about right there. You can handle the annuity truth.

I'm the brutal truth maker out here. I'm the walking middle-finger, brutal truth

of brutal annuity truth. So, what are we talking about today? How's a

non-qualified annuity tax? Disclaimer. I'm not a tax lawyer. I'm not a CPA. You need

to talk to those people. Do not take tax advice from people that haven't earned

the right to give tax advice. It's like asking a fat person how to be skinny. You

don't do that. Alright? Don't ask people that don't do taxes how to do taxes. Now,

you saying this up, "Hey, wait a minute. We're talking about Texas, right Stan?"

Yeah, you ask. That's why I do my YouTube videos. So, let's talk about how

non-qualified annuities are taxed. I'll give you the 30,000 foot view

from the b-2 bomber but you got to come down here to the fighter pilot and

that's the tax lawyer when you get down to the end and you're trying to make a

decision. So, we're going to cover all that. All types of annuities in a

non-qualified account. Non qualified means non-IRA. Okay? That's what that

means. So, we're going to talk about that. At the end of the video, I'm going to tell you

how you can get quotes and how you can get my books for free. And so hang in

there with me. We're going to talk about the ugly word --Taxes.

Non-qualified annuities. Meaning, the annuity is not in your IRA. And I'm

wearing to talk about Roth IRA is not in your traditional IRAs. So, it's in a

non IRA account. So, how are those annuities taxed? Let's go through the types, right?

Let's go through the primary types. Immediate annuities which is a pension,

income-now-type product in a non qualified setting. It's going to be a

combination return of principal plus interest based on your life expectancy

at the time of the payment. So, you're not going to pay taxes on the return of

principal side. You're just going to pay taxes on the interest side until all the

money's gone. Once the money's gone, you pay taxes on it all. Alright? It's based

on your life expectancy. Same thing for deferred income annuities in a non IRA

setting. It's an annuitized product. So you turn on the lifetime income stream.

It's a combination return a principal plus interest. When the money is all gone,

you're going to pay taxes on the full income amount. But up until that point,

you're only going to pay taxes on the interest. Now, qualified longevity annuity

contract doesn't fit here. Why? Because that's used in traditional IRAs. Let's

talk about multi year guarantee annuities. Multi year guarantee annuities

in a non qualified setting. First of all the good news in a non qualified setting

because it's like a CD product. CDs, you have to pay taxes on the interest every

year. With multi year guarantee annuity fixed-rate annuities you do not

have to pay taxes on the interest of a year. It compounds and defers. But when

you pull the money out is taxed LIFO. Which means Last In First Out. "English

please." That's gains first. So, you're going to take the gains out first. You're

going to pay taxes on those first. Last in first out. Same thing with fixed indexed

annuities. If you have a fixed indexed annuities grown and you're going to take

money out, you're going to take gains first out. It's going to be taxed last in, first

out. Okay? So, that's kind of the.. In my world, the fixed annuity world which is

Stan the annuity man, license in all 50 states that that's how it's taxed. But

again, you need to talk to your tax advisor, etc.

In other words, if you have annuities in your portfolio now and you're trying to

figure out the best way to go about taking money out of those annuities, then

you need to talk to your tax lawyer or CPA. One other thing that might be of

interest is with deferred annuities like multi-year guarantee annuities or fixed

indexed annuities, you can get to the end of the contract. And instead of taking

lump sums out and being taxed last in first out in a non qualified account, you

can convert those into immediate annuities and take advantage of what we

call the exclusion ratio. Which is that combination return of principal plus

interest. And maybe it would be a more tax favorable decision for you.

I know I've thrown a lot at you. That's the reason I'm yelling at you to go see

a professional and we can work directly with them as well. Especially if you

already have annuities in your account. But if you don't and you're thinking

about "Should I get an annuity?" You know, in a non IRA setting, how would it be

taxed? Just remember, immediate annuities and in deferred income annuities which

are annuitized products, it's an exclusion ratio. Combination

return of principal plus interest. Multi-year guarantee annuities and fixed

indexed annuities. That's last in, first-out if you're taking

the money. And if you have an income rider attached to one of those... I know

I'm throwing a lot at you. Sorry. That's the reason you got a contact me, Stan

theannuityman.com. But if you have an income rider attached to an indexed

annuity or a multi-year guarantee annuity, some do have those. Then that's a last in

first out as well. Gains first with most income riders attached to fixed

annuities. I know that's a lot. So, hang in there with me.

Okay. So, I've got a call the other day. Guy had a multi-year guarantee annuity

he had held forever. Remember that's a fixed rate annuity's like a CD. And so

yeah a grown and it almost tripled. And he said, "Well, you know, I could take

money out. But I really like to turn it into an income stream for my

wife and myself." And I said, "Fine. We can do that." But there are a couple rules.

Number one, the IRS has a section if you're really, really bored and have no

life whatsoever. Go to section 1035 of the IRS code. And what that says is you

can transfer from one annuity to another annuity

an IRA setting. And it's a non-taxable event. It doesn't trigger any taxes. So,

you can go from XYZ annuity to ABC annuity. Wire transfer and it's not

going to create taxes. However, in this situation, we went shop for the best and

immediate annuity rates for this person's dates of birth for him

and his wife. And how they wanted to structure it. And so, we came up with the

the top 5 carriers. He chose one and then we said, "Okay, we can do a 1035 IRS

approved transfer from your current fixed-rate annuity to the immediate

annuity. But the cost basis --the original cost basis transfers to the immediate

annuity." Now, the cool part about that really is when he turns on the income

stream from the immediate annuity, that cost basis is figured in. But they're

going to (in essence) lengthen out that tax liability over their life

expectancies. He's still going to get an exclusion ratio. He's still going to be a

combination of return of principal plus interest. They're just going to factor in

the cost basis and then lengthen that out --that liability out over his life

expectancy. Which he liked. So, instead of cashing it all in and cashing the

multi-year guarantee annuity in and paying all the taxes last in, first out on all

that gain, he transferred it with cost basis to the immediate annuity and

created a lifetime income stream and then lengthen out that tax liability.

That's some Stan the annuity man inside info that you need to know. Alright. Not

my favorite subject taxes because I don't like paying taxes (a lot of them).

I'm assuming you don't either. But we have to cover them. And I hope we kind

of answered the general questions about how is a non-qualified annuity taxed. I

would encourage you to watch this video as well which is on income riders which

is a little bit more complex. The good news is let me find it. Drumroll please. Income riders

owners manual. It's one of the six owner's manuals that I've written and I want to tell you how

to get those in 2 seconds. But you got to do one thing for

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