Note: According to the IRS, if a distribution to an owner-employee is a prohibited transaction and the fiduciary is only responding to written instructions in making the distribution, the fiduciary is not participating in the prohibited transaction and is not liable for the penalty tax
The key variables that determine the breakeven holding period are the pretax rates of return for the annuity and the mutual fund, the taxpayer's tax rate during the accumulation period, the taxpayer's tax rate at the time the annuity is cashed out, whether the annuity's earnings are subject to the 10% penalty tax
, (see the sidebar on pages 74-75 for a summary of income tax rules affecting annuities) and the annual charges imposed on an annuity in excess of those charged a mutual fund with similar risk and return characteristics.
Feucht, Murphy Smith, and Robert Strawser, "The Negative Effect of the Marriage Penalty Tax
on American Society," Academy of Accounting and Financial Studies Journal, December 2010, http://bit.ly/2ErZIxJ) and is thus detrimental to society's interests (Floyd W.
Absent an exception, pre-59 1/2 withdrawals from a deferred annuity in a gain position are subject to a 10 percent penalty tax
. This penalty tax
is only applied to the gain amount in excess of cost basis (IRC Section 72(q)(1)).
Subject to limits and conditions, the penalty tax
generally will not apply to IRA distributions taken to pay qualifying medical expenses, health insurance premiums while unemployed, higher education costs, and qualified first-time home-buyer expenses (up to $10,000 lifetime from all your IRAs).
Only the amount contributed must be withdrawn, though a 6% penalty tax
applies (and will continue to apply for each year that the excess contribution remains within the Roth IRA).
Many people are saying that they'll simply refuse to buy the unaffordable ACA plan and pay the penalty tax
, which is only a couple hundred dollars.
Marriage penalty tax
. Federal recognition of a couple's same-sex marriage may result in paying more federal income tax, since the combination of two salaries can push a couple into a higher tax bracket.
Also, if the non-qualified SPIA is part of a Section 1035 exchange from an existing deferred annuity, this will have a bearing on whether the pre-59-and-a-half penalty tax
of 10 percent will apply to the taxable part of the non-qualified SPIA.
The Tax Court recently ruled that a taxpayer was subject to a 10 percent penalty tax
when he took a premature distribution from his qualified retirement plan in order to make alimony payments to his ex-wife pursuant to a family judge's order because the payments were not made pursuant to a qualified domestic relations order ("QDRO").
I can understand a penalty tax
for someone who is single and remaining in a three or four-bed property, but why is there a need to tax a tenant for having just one spare bedroom?