With a
non-qualified annuity or a modified endowment life insurance contact, earnings are taxed first, then basis, Keebler said.
What about customers who have one qualified and one
non-qualified annuity? Will producers be able to put on two separate hats?
Annuity LTC plans: Annuity/LTC plans with tax-qualified benefits allow a holder of a
non-qualified annuity to get benefits out of the policy, tax free, to pay for LTC.
Clients should consult their financial professionals and tax advisors to explore these post-death "inherited" IRA or "inherited"
non-qualified annuity distribution options.
Concern about higher taxes should offer a boost in
non-qualified annuity sales by making tax deferral benefits more attractive, particularly among affluent clients, since it appears that some of the Bush-era tax cuts on marginal income and capital gains tax rates will revert to pre-2003 levels next year.
With a
non-qualified annuity LTC benefits can be paid from a tax-qualified LTC rider provided the rider complies with the requirements of a QLTCI.
In addition, an IRS imposed 10 percent penalty will apply to the extent of gains distributed prior to age 59 1/2; this age-based restriction is effectively a trade-off for the tax-deferred benefit of the
non-qualified annuity.
Note: This is assumed to be a
non-qualified annuity and the word annuitant is used in lieu of client.
There's another avenue you might not be familiar with: the use of an existing
non-qualified annuity to fund a life-based LTC policy.
Furthermore, thanks again to the PPA, clients can receive true LTC benefits from their
non-qualified annuity (pursuant to PPA guidelines) completely tax-free.
Your male, 62-year old client purchased two
non-qualified annuity contracts in 2004 from a life insurance company.
IRC Section 72(s)(2) allows the
non-qualified annuity to be distributed over the life expectancy of a designated individual beneficiary as long as distributions start no later than 1 year after the annuitant's death.
