If you have a deferred annuity, unlike the 95% of owners who do not choose a monthly benefit, you may actually want to do this.
An alternative may be to take the accumulated balance (if allowed) and trade the annuity for life insurance because, as mentioned in previous posts, life insurance proceeds are not taxable to the beneficiaries. Remember, annnuities are purchased for "your" benefit, not for your survivors.
Why? You need the income.
(1) If you are insurable (check first), you could annuitize and use the monthly benefit to purchase an insurance policy if you have found that over the years you do want to provide a tax-free benefit to heirs.
(2) When you annuitize, then only a portion of your monthly payment is taxable because some of that money is a return of your own original investment. This is a nice benefit from a cash flow and tax-wise point-of-view. Unlike partial withdrawals which are 100% taxed, you may find that only 40% of a monthly annuitized payment is taxed (exclusion ratios are calculated for you by the insurance company).
(3) It is possible that if you live long enough, eventually all of your original investment will be paid out and the rest, of-course, would then be 100% taxable to you. Keep that in mind for tax planning.
(4) Before annuitizing an old contract, shop around. Other products may provide a better monthly payment if you can get out of the contract you are in and, remember, the older you are the higher the monthly payment (based on life expectancy).
An Introduction
Hi. Welcome to BourGroup and my blog. Phil
Phil Bour is a CERTIFIED FINANCIAL PLANNER(tm) professional since 2004, a Magna Cum Laude college graduate and an accounting professional for over 35+ years. I love numbers, statistics and economic history.
I am also an Enrolled Agent (EA) to represent taxpayers before the Internal Revenue Service and to prepare tax returns.
"Phil"osophy: I believe that you can manage your money on your own (not necessarily through individual stock selection but through mutual funds, ETF's and other solutions) once you receive some one-time, professional guidance. Why pay annual fees when there may be little added value? For additional information, first read the "An Introduction" label at the left. Then move on to others.
Phil Bour is a CERTIFIED FINANCIAL PLANNER(tm) professional since 2004, a Magna Cum Laude college graduate and an accounting professional for over 35+ years. I love numbers, statistics and economic history.
I am also an Enrolled Agent (EA) to represent taxpayers before the Internal Revenue Service and to prepare tax returns.
"Phil"osophy: I believe that you can manage your money on your own (not necessarily through individual stock selection but through mutual funds, ETF's and other solutions) once you receive some one-time, professional guidance. Why pay annual fees when there may be little added value? For additional information, first read the "An Introduction" label at the left. Then move on to others.