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Earnings on nonqualified annuities are taxed at ordinary income tax rates when withdrawn.
Earnings on nonqualified annuities are tax deferred until withdrawn.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 […]