72TQ Annuityw/ money from life insurance claim
L1: 72TQ Annuityw/ money from life insurance claimI have client who has recently recieved a substancial life insurance claim on her deseased husband. She is 56 yrs old and to protect her money and recieve better returns than she could in a bank we are purchasing an annuity and wish to take income distributions. Question: because initial deposit was tax exempt would she be pentalized on the entire withdrawal or only the portion of the gain (interest & Bonuses) she withdrew? The first distribution would be one year from today.2013-06-10 18:28, By: RAGUNCAJUN, IP: [184.108.40.206]
L2: 72TQ Annuityw/ money from life insurance claimIf she buys an annuity, she is subject to the annuity taxation rules.
There are a lot of other options other than a bank account. You probably aren’t doing her any favors by tying her money up in an annuity – I would imagine that there are surrender charges to cover your commissions.
2013-06-11 00:14, By: Gfw, IP: [220.127.116.11]
L3: 72TQ Annuityw/ money from life insurance claimI think that this forum is supposed to be devoted to SEPP 72-T and related IRA issues.
This posting concerns investment of insurance proceeds.
I agree with GFW that there are better alternatives to investing in an annuity at age 56, especially if there are penalties for withdrawals during the first 5 or 10 years.
The taxpayer should meet with a financial or tax advisor before meeting with any investment broker to do retirement and estate planning.2013-06-11 16:40, By: dlzallestaxes, IP: [18.104.22.168]
L4: 72TQ Annuityw/ money from life insurance claimI’m on vacation, ending tomorrow, but I MUST comment on this post.
I believe this forum focuses on 72(q) as well as 72(t), so this poster is right to ask the question. GFW adequately addressed what happens to the funds if put in an annuity.
But I’m going to address the suitability of the poster … obviously a Registered Rep or insurance agent since he is proposing selling an annuity to the client. From the original post I would concluded that this recommendation would be TOTALLY UNSUITABLE!
Life insurance proceeds are free of income tax to the beneficiary. Using them to buy an annuity turns tax-free money into a taxable event, just like using tax-free municipal bonds to fund a Traditional IRA, also UNSUITABLE!!!
If the poster moves forward with his proposal to fund any annuity with life insurance proceeds opens him for a legal action which will be rulled in favor of the client.
DON’T DO IT!
Jim F2013-06-16 01:40, By: Jim F, IP: [22.214.171.124]