Will annuities be pushed off the fiscal cliff?

[obgyn65]

"As negotiations in the nation’s capital heat up over how to reform the tax code, lower the deficit and avert a plunge off the so-called fiscal cliff, might the tax-deferred status of annuities be rescinded?"

Will annuities be pushed off the fiscal cliff? | LifeHealthPro

I just started to buy deferred annuities this year...

 

[MichaelB]

Oby, I have no idea if this is more or less likely than any other tax measure. Typically, though, tax measures are not retroactive in the US, so if this were to happen it would probably not affect annuities that have been created, only new investments.

 

[pb4uski]

That and the insurance industry, agents and customers are a hugely powerful lobby who would fight tooth and nail to keep the tax deferred status of annuities and life insurance. I would handicap it at 2% at most.

That said, today's deferred annuity products and some forms of life insurance (like UL) are so similar to bank products I'm not sure why they get special tax treatment. It made more sense in yesteryears for whole life and deferred annuities where the only exit option was endowment or annuitization.

 

[rescueme]

I assume life insurance (whole/term) are already paid for with taxed funds. Yes, the proceeds upon death are tax-free, but there is a portion that has been taxed. It's the same as an annuity purchased with non-qualified funds (e.g. non-TIRA money). In that case, each payment received upon starting the distribution is made of taxable and non-taxable funds. The part of the payment that has already been taxed is not taxed again.

As for annuity products (such as our SPIA), purchased with TIRA (qualified) funds, the monthly payments are 100% taxable at normal (current) rates. So the government(s) are getting their "pound of flesh" at one point in time, although not immediately.

If "they" want to start taxing the qualified money used to purchase an immediate/deferred annuity at the time the contract is struck, not at the time of distribution, then I would think the entire TIRA scenerio is at risk.

But what do I know? ... Just my musings on the thread.

 

[growing_older]

I've been pitched all sorts of insurance products over the years, and many of them had the property that they were relatively poor investments, but the tax advantages they enjoyed made them at least so-so. For investors with higher tax brackets than me, they actually started to look good.

This never made sense to me why such generous tax benefits should accrue to complicated tax dodging schemes simply because there was at least a minimal insurance component included.

 

[meierlde]

I assume life insurance (whole/term) are already paid for with taxed funds. Yes, the proceeds upon death are tax-free, but there is a portion that has been taxed.

Actually the proceeds of life insurance are supposed to be included in the total estate of the policy owner. You need to ask for a form 712 from the insurance companies. If the exemptiion goes down to $1 million it will become a bigger issue, today because of the $5 million exemption the estate tax is not an issue here.

 

[ERD50]

... then I would think the entire TIRA scenerio is at risk.

Everything is at risk. I often think the riskiest things are those that people consider low-risk. They may be deluding themselves, and that is very risky.

-ERD50