Wednesday, February 02, 2011

Annuities: Will I Be Taxed When I Die?

Will I Be Taxed On My Annuities When I Die?

This question is not uncommon. First and foremost, you must understand that there are several taxes that must be taken into consideration. Your annuity value will be included in your estate value at the time of death. So in the case of estate taxes, if you are over the exclusion amount, they can create a tax burden.

More importantly however, is what happens to the inheritor of your annuities. Your heirs are taxed on the gains in your annuity value. Here is a great explanation of this from

Upon your death, your heirs inherit the $200,000. Tax rules say their cost basis in the investment will be the investment’s value upon your date of death; in this case $200,000. They can now sell it, and pay no tax on the $100,000 of gain.

This step up in cost basis does not apply to annuities.

If you invest $100,000 in a variable annuity, and it doubles to $200,000, upon your death, your heirs will have to pay taxes, at their ordinary income tax rate, on the $100,000 of gain. This could result in federal taxes of $15,000 - $35,000, depending on their tax rate.

No tax would be due if the investments had been placed directly in a mutual fund, instead of inside the variable annuity.

Unfortunately, when variable annuities are sold, far too few advisors explain that your heirs may pay thousands in taxes, instead of no taxes.

However, there is a solution for this. There are ways to make the value of your annuity tax free if you take particular actions. To better explain this, please clicck on the following link:

Tax Free Annuities

This site has a great program to help you take advantage of some laws that may help you. Hopefully you find benefit in this.


Tony Bahu


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