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Question for the Money Doctors

Question submitted on Aug 4, 2020.

Question

My mom recently passed. My dad is 93 and I have become POA. His income is SS and interest from CDs. My mom’s whole life insurance was about 20,000 which I believe is tax free. She also had annuities totaling about 320,000 which I’m thinking my dad will be taxed on. He owns 2 houses, no mortgages and doesn’t need the money to live on. What would be a way to lessen the tax burden? Many thanks for any help.

Answer

Please contact the insurance company to find out how of the $320,000 is taxable.   The entire amount is not taxable.  Your dad will pay tax on the growth of the annuity above what was paid for the annuity.   He does not need to cash it in all at once.  Do some tax planning and take a partial distribution to lower the tax bill.   I am assuming these are nonqualified annuities which means they are not in an IRA account.   If they are in an IRA account, then the account can be rolled over to your dad's IRAs and distributed over his life expectancy.


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