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Question for the Money Doctors

Question submitted on Nov 7, 2013.

Question

I have 40,000 annuity, and life changes has made the need to get my money now. What is the best way that I will pay the least in penalty and taxes?

Answer

Hello - the whole annuity may not be taxable depending on whether it is a "qualified" or "non-qualified" annuity.

If it is a qualified annuity, you may owe tax on 100% of the value. If it is a non-qualified annuity, you may only owe tax on the "growth" in the account and not the original principle invested.

Either way, one suggestion to minimize your tax bite would be to distribute 1/2 of the annuity in December 2013 and 1/2 in January 2014 In this manner, you could spread the tax burden over 2 years which may even lower your tax bracket as well.

This is complicated issues and you should contact a CPA/PFS to help. To find one local, go to www.findacpapfs.org .


For additional information visit http://www.360financialliteracy.org/