Are You Making This Annuity Mistake?
The IRS Could Take 50% of Your Annuity Value!
Many annuity owners lose half of their annuity value and most are
not aware of it!
Take a look at the followitng example:
Mary, age 55, purchased a fixed annuity for $50,000. She
held it for 10 years and theinterest accumulated nicely.
The account doubled to $100,000 (a compounded rate of 7.17%).
So far Mary was very happy with this alternative. She never
gave much thought about what happens to the annuity at
her death. She figured she would eventually withdraw
the money and use it. The truth is that less than 10%
of annuity owners make any withdrawals from their annuity.
If the owner passes away, the policies can get hit with some
very large taxes. In Mary's case, here's the picture at death
when the taxes are due:
Annuity Value: $100,000
Income Tax -20,000
Estate Tax -32,000
Beneficiaries get $48,000
Is there a remedy? Yes! Mary could annuitize the annuity
(deferred taxes or sales charges could apply or a 10% tax
penalty if under age 59 1/2). When you annuitize the annuity,
you select a payout option that may include a lifetime income
from the annuity company. You trade the $100,000 balance for
a guaranteed income for life. Mary had her insurance company
make monthly payments to her of $700. She used the after tax
dollars to purchase a life insurance policy on her life, payable
to her beneficiaries. She purchased a $275,000 universal life
policy with a death benefit guaranteed to age 115. Now, instead
of Mary's heirs getting only $48,000 at her death, the heirs receive
$275,000 of life insurance death benefit, free of income taxes.
(The proceeds of the life insurance policy can be kept out of the
estate through proper estate planning). That is almost 6 times
as much money for the beneficiaries.