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Non-qualified annuity

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thegreynold

Junior Member
What is the name of your state (only U.S. law)? CALIFORNIA

My Grandmother passed away this year and I've been named the sole beneficiary of a Non-Qualified Annuity which she had originally opened in 2003for $30,000. According to the insurance company, my Grandmother had taken a total of $7,000 out of gained interest between 2003-2010. I have been advised that the annuity is currently worth $30,200 if I choose to receive a payout in a lump sum. Also, the insurance company has asked if I want to withhold taxes or not...

1. What is my tax exposure?
Is my thinking correct that I will only be taxed on the $200 in interested gained and not on the entire original $30,000?

2. Do I need to worry about the $7,000 that my Grandmother had taken out in interest already or was she already taxed each year accordingly for it?

3. Will the $30,000 count as income and push me into another tax bracket or is it only the $200 in interest/gain that counts as income?

4. Do I need to have any taxes withheld if I choose to have a lump sum payout?

ThanksWhat is the name of your state (only U.S. law)?
 


anteater

Senior Member
The rule on withdrawals from a non-qualified variable or fixed annuity is that earnings are considered to be withdrawn first. And, if grandmother only withdrew earnings over the years, she should have declared them as income and paid tax.

If she only withdrew earnings and did not dip into the principal, then only $200 should be taxable income now when you withdraw the balance.

I am only referring to federal income tax. I do not know California, but I suspect that CA income tax follows the same principal.
 

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