What are the tax ramifications on a 1 million dollar annuity which has accrued 250,000 dollars interest in the last 5 years, has no penalty clause( for withdrawal), and the proceeds will go to 5 heirs(children) in the form of single premium annuities-same company, which is a restricted non-profit military officer company.
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Just to clarify I am assuming this money in the annuity is not an IRA or tax qualified. If you take money out of the annuity; the interest must come out first, which is taxable at your current tax rate. All the interest ($250,000) must come out before you can get any of your original investment. A second option is to start a pay out on the annuity (to annuitize the annuity). This could be done over a number of years 5, 10, etc. or your life expectancy or a combination of both. If one receives payment in this form; part of each payment is return on investment and part interest, which is taxed. The Insurance Company would give you that information.
If you pass away; your beneficiaries (5 children) would have a choice between taking the money all at once or annuitize the amount over some time period or life or combination. They will be taxed on their one-fifth share at their income tax rate.
Source - dallasnews.com - 10-25-2009
I contacted Immediate Annuities.com to buy one of my immediate annuities. They were prompt, very responsive, paid attention to detail, understood my objectives, and were superb when it came to staying on top of seeing the funds transfer and issue of new policy documents through to completion.