What I learned today about annuities
What I learned today about annuities could fill a book.
This lady had 2 problems...first of all, she talked to them about a 1035 exchange so she KNEW that the money had to go to another financial institution. But then she got impatient and had them send her a check which in itself nullified a 1035 exchange and made the distribution taxable.
The second problem was that she withdrew another $3000 in December. IF that had been a 1035 exchange no other withdrawals are allowed during a 12 month period. So if she had done an exchange it would have been nullified by the December withdrawal.
Next we asked about whether she was getting back interest or some of her principal. She has a non-qualified plan. Withdrawals from a non qualified plan are automatically interest until the interest is gone, then it is principal.
She had the money in different "buckets" paying different interest rates. We were thinking too that she took the money from one bucket so part of that would be her principal. Not so!! Any withdrawals from the account are interest first...doesn't matter what bucket they are in.
I spent an hour and 15 minutes on the phone with the client and the representative from the life insurance company. I think the client knows now exactly what she can and can't do. She is just mad at them now and wants to move all her money. It will be the same somewhere else I'm sure.
Linda EA
What I learned today about annuities could fill a book.
This lady had 2 problems...first of all, she talked to them about a 1035 exchange so she KNEW that the money had to go to another financial institution. But then she got impatient and had them send her a check which in itself nullified a 1035 exchange and made the distribution taxable.
The second problem was that she withdrew another $3000 in December. IF that had been a 1035 exchange no other withdrawals are allowed during a 12 month period. So if she had done an exchange it would have been nullified by the December withdrawal.
Next we asked about whether she was getting back interest or some of her principal. She has a non-qualified plan. Withdrawals from a non qualified plan are automatically interest until the interest is gone, then it is principal.
She had the money in different "buckets" paying different interest rates. We were thinking too that she took the money from one bucket so part of that would be her principal. Not so!! Any withdrawals from the account are interest first...doesn't matter what bucket they are in.
I spent an hour and 15 minutes on the phone with the client and the representative from the life insurance company. I think the client knows now exactly what she can and can't do. She is just mad at them now and wants to move all her money. It will be the same somewhere else I'm sure.
Linda EA
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