OT- Annuity question

[Extra Point]

A person I know who has an annuity told me that they are taxed by the state (Tennessee) on their annuity's capital gain even though they are not being paid out yet by the annuity. But the state does not reduce taxes for capital loss that the annuity has. I just could not understand what they were talking about, or more accurately, did not think what they were saying was right, as I questioned them. So I ask you guys. Do some states tax people's annuities before money is even withdrawn?

 

[wheezer]

A person I know who has an annuity told me that they are taxed by the state (Tennessee) on their annuity's capital gain even though they are not being paid out yet by the annuity. But the state does not reduce taxes for capital loss that the annuity has. I just could not understand what they were talking about, or more accurately, did not think what they were saying was right, as I questioned them. So I ask you guys. Do some states tax people's annuities before money is even withdrawn?

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I know if you own mutual funds and do not withdraw you still get taxed federal and state, on distributions and gains... Could be much the same

 

[rukelvin]

I am not licensed in TN - but annuities don't pay capital gains like a mutual fund. I believe your friend is off base here. The reason that folks choose annuities is because of the tax deferral.

 

[Abro1975]

no expert here, but since these instruments fluctuate so much, I thought the taxes don't get realized until you execute a transaction and get the appropriate forms from the investment company to file with your income taxes.

 

[mdk01]

A person I know who has an annuity told me that they are taxed by the state (Tennessee) on their annuity's capital gain even though they are not being paid out yet by the annuity. But the state does not reduce taxes for capital loss that the annuity has. I just could not understand what they were talking about, or more accurately, did not think what they were saying was right, as I questioned them. So I ask you guys. Do some states tax people's annuities before money is even withdrawn?

Tennessee has a somewhat "different" state tax system. There is no tax on wages, but taxes on all sorts of investment income. I can't address annuities specifically, but it sounds to me like it would be specific to Tennessee.

 

[rukelvin]

Annuities value are calculated with Accumulation Unit Values - it's recalculated each day. With this type of valuation, there is no distribution reported so no capital gains until you withdraw from the annuity.

 

[RU82]

Your friend is mistaken. Annuities are tax deferred investment vehicles.

It seems that your friend owns a 'variable annuity', which are mutual fund based.

If he purchased the annuity with after tax dollars all gains are treated as ordinary income when, and only when, the money is distributed to him as income. The original investment is exempt from taxes. It's essentially treated as a cost basis. Annuity products vary in how they treat that cost basis. Some products include it as a percentage of every payment while others don't factor it in until all investment gains have been distributed.

If he purchased the annuity inside an IRA, all distributions are taxed as ordinary income, which is always the case with IRA's regardless of how they are invested. The IRA taxation rules take precedence.

 

[Extra Point]

Thanks guys!

 

[e5fdny]

TN is one of those states considered to be pension friendly.

Something to think about if you were planning to retire (or get another govt. type job) and stay there for 4-5 years.;)

 

[ru78]

When does an annuity makes sense to buy. I need to catch up on my retirement. Assuming I max out the SEP contribution and Roth. Can the annuity be bought by the company I own and be deducted?

 

[kjb32812]

When does an annuity makes sense to buy. I need to catch up on my retirement. Assuming I max out the SEP contribution and Roth. Can the annuity be bought by the company I own and be deducted?

Lots of options out there that you could utilize. Depending on the side and ownership of your company, you may even consider a 401(k) with profit sharing and/or pension.

 

[ru78]

I own the company

 

[kjb32812]

I own the company

If you are maxing your SEP, I am guessing you don't have a lot of employees?

I would suggest you sit down with your CPA/FP (preferably both) and work through your options. There are a ton of different things you can do but to get into them here without knowing your situation wouldn't be prudent. Talk to those professionals who know about your situation and seek their advice.

 

[ru78]

Thanks for your information. I am the only employing of a C listed corporation

 

[kjb32812]

Thanks for your information. I am the only employing of a C listed corporation

Sure. You definitely need to get with your professionals and work through your options.