In general, investment income includes, but is not limited to: interest, dividends, capital gains, rental and royalty income, nonqualified annuities
, income from businesses involved in trading of financial instruments or commodities and businesses that are passive activities to the taxpayer (within the meaning of section 469).
Planning Point: Although the rules under IRC Section 1035 cover a broader array of annuity exchanges, funds in nonqualified annuities
are not freely movable.
For many, income taxes on inherited retirement plans, 401(k) balances and gains in nonqualified annuities
may create significant costs.
Another important element, Ludden said, is that the law permits tax-free exchanges (under Section 1035 of the tax code) of existing nonqualified annuities
into LTC annuities.
You may take LTC risk charges from life insurance, endowments and nonqualified annuities
, and these charges will not be considered disbursements.
The following discussion of annuities relates to nonqualified annuities
For deferred annuities, nonqualified annuities
generated more sales premium than either IRAs or qualified employer plans.
While on target with the discussion of qualified retirement plans and Roth IRAs, the article misinformed readers about nonqualified annuities
Warshawsky, "Taxing Retirement Income: Nonqualified Annuities
and Distributions from Qualified Accounts," NBER Working Paper No.
Nolan is the director of retirement planning services at Penn Mutual and provides sales and technical support in the areas of ERISA qualified retirement plans, SIMPLE, SEP, traditional IRAs, Roth IRAs, nonqualified annuities
and life insurance.
First, because the tax deferral enjoyed by nonqualified annuities
flows from provisions of the Internal Revenue Code that apply only to nonqualified annuities
, that deferral cannot be wasted by an IRA annuity because it does not apply to an IRA annuity.
On top of that, the $375,000 donation will yield $519,000 of income to the donor over their lifetime, and because of exclusion ratios contained in nonqualified annuities
, the income tax due on the annuity income will be reduced further until the cost basis of $375,000 has been paid out.