Confused about my options!

[lacawac]

Hi all,could use a little thought process help. I apologize in advance for my
lack of financial sense so here it is. My question is if a person was to have an annuity savings account of $ 900,000.00 which has been tax free and earning about 3 %. and also cash available that allready has been taxed of about $300,000.00. if that person needed about $30,000.00 a year to withdraw for expenses would they be better to use the money from savings allready taxed or take say $38,000.00 from the annuity account .I hope i have explained the scenario okay. Any advice would be greatly appreciated. Thank you.

 

[Animorph]

Sounds like a non-U.S. problem? We might need a little help on how your annuity rules work. But generally you want to use taxable funds first and then tax-deferred funds. That allows the tax-deferred funds to grow as much as possible, maximizing your tax benefits. Not sure that holds so strongly if it's only earning 3%, but probably still OK versus already taxed cash.

 

[rothlev]

Well, tax wize you want to figure out your tax bracket, withdrawing from the taxable account to the number that allows you the least impact on your taxes. So, if you have only social security with this, you could definetly take a large withdrawal from the taxable account before you started paying any taxes on it. However if you already have taxable income then the decision might be take the taxed funds first.

 

[kaneohe]

to followup on rothlev's comments: single or married? std deduct or itemized? age? see the key #s below
Ex 1: single, std deduction, not aged = exemption 3800, deduction 5950; sum exemption/deduction = 9750; if you withdraw 38K that is going to be taxed, taxable income (w/ no other income, adjustments) is about 28K which will be taxed at about 14% or so = 4K or so
Ex 2: married filing joint, not aged = exemption 7600, deduction 11900; sum exemption/deduction = 19500; if you withdraw 38K that is going to be taxed, taxable income (w/no other income , adjustments) is about 18K
which will be taxed at about 10% or so = 1.8K
Ex 3: if you withdraw 30K that won't be taxed; tax = 0

you should verify #s on tax software or calculator like Taxcaster
TurboTax® TaxCaster - Free Tax Calculator - Free Tax Estimator

Your description is a little confusing to me.....do you have
A) an annuity account all of which is tax-deferred (incuding original contributions) and interest plus a separate stash of already taxed cash?
B) or is the original contribution to the annuity already taxed and only interest is tax deferred?
C) or do you have B) plus a separate stash of already taxed cash?

Depending on what you have, you may want to have a blend of both
taxable and non-taxable withdrawals to fill out your so-called "0%"
bracket(where taxable income is 0) with the amount of each depending on your individual situation?



Key Tax Numbers 2012
Personal exemptions $3,800

Standard deduction
married filing jointly 11,900
head of household 8,700
single or separate 5,950

Additional amount for aged or blind
married 1150
single 1450

 

[pb4uski]

Hi all,could use a little thought process help. I apologize in advance for my
lack of financial sense so here it is. My question is if a person was to have an annuity savings account of $ 900,000.00 which has been tax free and earning about 3 %. and also cash available that allready has been taxed of about $300,000.00. if that person needed about $30,000.00 a year to withdraw for expenses would they be better to use the money from savings allready taxed or take say $38,000.00 from the annuity account .I hope i have explained the scenario okay. Any advice would be greatly appreciated. Thank you.

One thing to keep in mind is that in many jurisdictions if your take $38k from the annuity account that it probably would not result in $38k of taxable income - you would have some basis in the annuity from your contributions that helped build up the $900k (tax deferred, not tax free - at least in a US context) so only a portion of the $38k would be income, the rest would be a return of contributions. Your annuity provider should be able to tell you roughly how much of a $38k benefit would be taxable income.

So a lot would depend on tax rates, tax brackets, etc. and you would need to provide more information to get a more cogent response.

 

[rothlev]

Keep in mind that SS income is not always taxed. So, the trick is to find the sweet spot if in fact that is your situation. ( SS income supplemented by withdrawals from taxed, and tax deferred accounts.) If you give us more details on your situation, we can help you figure it out.

 

[lacawac]

confused!!!!

thanks for the replies . Additional info requested I am 59 years of age, married, the annuity money has never been taxed so all of the withdrawals i believe would been subject to taxes. The 3 percent interest varies as it is in a plan that is tied to the stock market. I wanted to move into something else but have been afraid to make a move. Like I said not sure if using the allready taxed monies or withdraw from the annuity account. again thanks for the replies.

 

[rothlev]

If there is no other income, ie w-2 earnings, interest, dividends, I would take out at least 19500 from your annuity, and the remainder from your already taxed money. This could result in a 0 tax liability. Use a tax program to play with the numbers ( ie) dinkytown calclators or HR block's free tax estimator for example

 

[lacawac]

confused ,additional info

thanks Rothlev, additional income which may need to be considered is SS disabilty ( about $30,000 ) and a small pension ( about $ 27,000 ) .This is why I am trying to establish a game plan .Thanks again.

 

[rothlev]

Right now not figuring the 30k , you are in the 10% bracket and part of your social security is 50% taxable. as you withdraw more money from the annuity , more of your social security will become taxable. Tax wize, you'd do best to withdraw the taxed money. The annuity $ will be taxed at your tax rate. You'd be moving into the 15% bracket withdrawing from there. Use the turbotax estimator to play with the numbers. Some of the others don't do the math to figure out tax on social security whch is a little confusing. IRS does have a worksheet you can fill out manually.

 

[rothlev]

Also, You probably cannot start withdrawals on the annuity money until you are 59 1/2 .

 

[lacawac]

moving forward

thanks again for your advice(very helpful). Is there any vehicle you would recommend that I might transfer my annuity money into that might work better for me that I could check out. The interest number that would really work for me would be around 5%, I know that,s a tough order in these economic times. Again thank you for your advice

 

[rothlev]

There are a lot of people who post here who know a lot about investing and annuities. What kind of annuity is it? why did you purchase it? Is there a surrender charge on it should you change your mind? Most of the posters here are not fans of annuities. You appear to have good amount of your expenses covered with pension and social security and may not need an annuity. does the pension have a cola ?

 

[LOL!]

Education on taxes and annuities is the key to deciding what is best.

It seems you do not need to withdraw from the annuity, but want to transfer the annuity to a new investment. It also seems that this might be an equity-indexed annuity (EIA). These EIAs have high surrender fees and other nasty things associated with them. Unfortunately, there is probably no easy to way to manuever without the help of a professional fee-only certified financial planner to get you out of this mess.

Or you could teach yourself some things such as how to do your own taxes and how to transfer annuities to a place like Vanguard. Also you can run the calculator at www.i-orp.com which may be helpful on determining the sequencing of withdrawals and rollovers.

But to me, just from the limited info (and misinformation) presented, I would spend up to a thousand dollars to have a fee-only fiduciary working for you figure this out.

 

[lacawac]

final info

I didn,t purchase this annuity,I was a member of a union for over 35 years. It is my belief that I can roll it over into another vehicle with no penalties or charges. I am sorry if some feel it is misinformation? I really just wanted to know what would be better to take from,I thoiught the taxed money would be the way to go but I just wanted some advice from others. Thanks again

 

[rothlev]

I can roll it over into another vehicle with no penalties or charges

I would roll it over into an IRA at Vanguard and choose my own investments after you do some homework as to asset allocation risk tolerance etc...
Vwinx ? (wellesley income)

 

[rothlev]

Make sure that you are allowed to do that w/out penalty . Vanguard does sell annutities also if your only option is a 1035 exchange. There is no free lunch if you do your own investing. higher yield = more risk. In this market 3% is not so terrible. I keep a significant portion of DH's TSP in the "G" fund,which has a very low yield but no risk.

 

[LOL!]

To add to the confusion: I have a retirement annuity from my previous job. It is the TIAA traditional annuity and is held in my 403(b). It pays a guaranteed minimum rate of about 3%, but has been paying more than that for decades. Sound familiar?

I can roll some of it over to an IRA without paying any penalties. I do not have to do a 1035 exchange. When I am at least 59.5 years orld, I can start withdrawing and count the withdrawal as part of my income and pay taxes on the withdrawal.

My point is that in this thread, we still don't know what lacawac (he original poster) has in terms of an account and investment. I think we are all confused and I am certainly confused.

As for question in the original post about whether to use existing savings in a taxable account first or withdraw from a retirement account to pay $30,000 annually in expenese, ...., the answer is: "It depends on your personal tax situation" which we really do not know much about. The early responses from rothlev and kaneohe describe why. The answer is probably going to be "withdraw from both" with the www.i-orp.com and taxcaster calculators helping one make a good decision.

 

[travelover]

............There is no free lunch if you do your own investing...........

Is there, then, a free lunch when you don't do your own investing?

 

[rothlev]

Well , I took it that the OP had something similar to LOL's TIAA plan.

It pays a guaranteed minimum rate of about 3%,