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Tax Deferral - Annuities

Advantages of getting an  Annuity

Safety of Principal!

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Annuity Introduction

Most people have worked hard all their life accumulating their “nest-egg”. They should not put their money in risky investments, especially our senior citizens. Most seniors are more concerned about the “return OF their money than the return ON their money”. Annuities are considered to be safe investments for the following reasons:

  • No market risk
  • Backed by the financial strength of large life insurance companies who are required to set aside a portion of their assets (reserves) to cover claims.
  • They also spread their risk through the industry’s reinsurance network, i.e. several companies share in a particular risk.
  • Tax Deferral – Taxes are paid only when money is received. IRC Section 72  This results in a much faster cash build-up. Your principal grows because you receive:
    • 1) interest on the principal;
    • 2) interest on the interest;
    • 3) interest on the money that normally would have been paid in taxes.
  • Competitive Interest Rates – At present, and historically, annuities outperform CD’s and money market accounts.
  • Accessibility– One of the biggest concerns, especially with seniors, is “Do I Have Access to My Money, Should I Need It?” There are a number of choices:
  • Withdraw interest as needed, monthly, quarterly, etc.
  • Exercise free withdrawal privilege
  • Total surrender
  • Annuitize (choose one of a number of income options)
  • Avoids Probate – By naming a beneficiary, your annuity account is paid directly to a named individual, making it accessible and eliminating probate costs.
  • Interest Rate Guarantees – Almost all annuity contracts have minimum rate guarantees…the rate can never go below a specified amount.
  • Current Income Reduction – CD’s, money market accounts, savings accounts, etc. require current taxation of interest earned even if it is not taken. Annuities are taxed only upon receipt of interest.
  • Lifetime Income Option – Annuities are the only investment vehicles available that guarantee you cannot outlive your monthly payments
  • Retirement Annuities: Know the Pros and Cons  Investopedia
  • General Information on Annuities   Annuity.org 

Avoid Risk and invest in a tax deferred annuity!

Your PRINCIPLE & INTEREST  is FULLY GUARANTEED at all times!!

You get:

  • Triple Compounding
  • Tax Savings
  • No Fees or Load Charges
  • Competitive Interest
  • Probate Avoidance
  • No Market Risk
  • Does not affect taxation of your social security
  • Liquidity (Ability to withdraw funds)  (Brsan)
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Power of Tax Deferral -

Tax Deferral - Annuities
from North American Brochure  

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Social Security Retirement

Social Security #Retirementa Benefits
Publication # 10035

Social Security Retirement Benefits # 10035

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Resources & Links

IRS Tax Publications 

Publication 590 A
#Contributions to IRA's 

IRA publication 590

 

 

Tax Highlights for Persons With Disabilities Publication 907  

 

Tax Highlights 907

Publication 525 taxable and Non Taxable Income 

 

525 taxable and non taxable income

#Pension & Annuity Income
Publication 575 pdf * HTML 

 

 

General Rule 939 for annuities & pensions

 

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Covered CA 

Social Security & Retirement Income 

MAGI Calculation

How much of your #Pension & Annuity Income goes on line 5a of IRS 1040 and
thus counts towards MAGI Income for Covered CA subsidies?

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Covered CA (& Medi Cal) - Calculate - #Countable Sources of  MAGI Income
Short Summary
countable income

Just the Count Taxable Portion of your Pension

reverse annuity

non taxable annuity

Calculate your  Covered CA MAGI Income

take #Line8b 11 Adjusted Gross income then add line 2a, 6a &   8 (Foreign Income)

magi income adjusted gross income 1040

 

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4 comments on “Annuities & MAGI Income Taxation Exemption”

  1. I’m under 65. Healthy. I get MAGI Medicaid in AZ.

    What if I take my savings and put into an annuity?

    Nothing will be considered MAGI income until I withdraw or take pay out,, correct??

    If I buy annuity, will my MAGI Megicaid” free health insurance” be affected by any growth, until I cash it out.

    Reply

    • MAGI Income is Line 11 Adjusted Gross income plus a couple of other minor things. See definition above.

      What you have in Savings would not be income, except for the interest.

      An Annuity would only be taxable on the interest when taken out.

      Are you looking to lower your AGI – MAGI by having an IRA?

      As far as Medicaid is concern, I don’t see any point in transferring $$$. Assets don’t count toward MAGI

      MAGI Medi-Cal programs (including MCAP) and Covered California have no eligibility requirements related to assets – sometimes also called “property” or “resources.” Western Poverty Law

      What other advantages were you looking for in an annuity.

      No, you don’t pay taxes on the interest until you withdraw the $$$

      Paying taxes on income:

      When you start to receive income payments, you have to pay taxes. Income payments are taxed as regular income, not as capital gains.

      Each income payment can include both principal and interest. You pay taxes on the whole income payment if you bought the annuity using pre-tax dollars. You only pay taxes on the interest if you bought the annuity using after-tax dollars. CA Department of Insurance Page 7

      Please note, I’m not a tax professional.

      Reply

  2. When taking withdraws from a NON-QUALIFIED ANNUITY:

    Does ONLY the interest earned on the non-qualified annuity count towards the MAGI?

    Or, does the principal(cost basis or purchase price) PLUS the interest earned count towards the MAGI?

    Reply

    • We are not giving tax or legal advise. Here’s our research. Check with your CPA. This is really a question for your CPA as Covered CA MAGI goes mainly by what is your adjusted gross income.

      A non-qualified annuity is purchased with after-tax dollars that were not from a tax-favored retirement plan. Non-qualified annuity premiums are not deductible from gross income.

      Only your earnings are taxed as income; principal is not. Annuity.org

      The amount of taxes on non-qualified annuities is determined by something called the exclusion ratio. The exclusion ratio is used to determine what percentage of annuity income payments is taxable and how much is not.

      The idea is to determine the amount of a withdrawal or payment from an annuity is from the already-taxed principal and how much is considered taxable earnings. Read more Annuity.org

      See page 18 of Publication 575

      Reply

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