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Tax Strategy for the Week (September 20th,2013)

Split Funding an Annuity
Tax Issue

Taxpayers often use interest income to supplement earned income or retirement income. Interest income generated by bank savings accounts or certificated of deposit (CD) is subject to ordinary income tax at the taxpayer’s marginal rate.

When interest rates are low, taxpayers look for ways to generate the same amount of income as when interest was higher.

Applicable Tax Law

Earnings on nonqualified annuities are taxed at ordinary income tax rates when withdrawn.
Earnings on nonqualified annuities are tax deferred until withdrawn.
Interest earned from bank savings account and CDs are taxed at the taxpayer’s marginal rate in the year earned.
Taxpayers […]

Tax Strategy for the Week (September 13th,2013)

Nonqualified Annuities – Tax Benefits
Tax Issue

Nonqualified annuities offer tax-deffered earnings. However, upon distribution, nonqualified annuity earnings are taxed as ordinary income. Nonqualified annuity withdrawals are treated an income-first, meaning that the earnings are withdrawn before removing the principal. In addition, if the taxpayer is younger than 59 ½, withdrawals of earnings are generally subject to an additional 10% tax.


Other investment income, such as stock or mutual fund dividends, is often taxed as qualified dividends at a lower rate than ordinary income. In addition, equity investments help for greater than one year are generally taxed at a lower capital gains […]