I don't think that's how it works. I think you are taxed immediately on the interest that you receive - I don't think partial 1035 lets you avoid the "interest taxed first".No need to apologize. Just the opposite. You're great to be so helpful, and the detail is valuable.Everything you say is correct. In other words, so long as you don’t receive any funds, no taxable income is reported to you. You can either leave accruing interest in the policy, or 1035 exchange monies out to a new policy. Either method defers the reporting of taxable income.F&G says I can withdraw any amount of interest at any time. So, as an example, let's say I've accrued $5,000 interest the first year on a $100,000 policy, my understanding is that I can now 1035 exchange that $5,000 into a new MYGA policy, deferring tax reporting on that $5,000 until the NEW policy comes to term. Meanwhile, the F&G policy is back to $100,000 as the starting point for new interest it earns.On the F&G policy where you will be transferring interest just before the initial guarantee period is up, what do you plan to do with the remainder of the funds still at F&G when the guarantee period expires?
Well, with the F&G policy that allows withdrawal of interest anytime, I can plan to 1035 transfer all remaining interest a month or two before the policy comes to term, thereby having next to no interest to report for taxes that year of termination. I'll likely do a maximum Americo 1035 transfer the same way.
If you plan to have them sent back to you, you will have taxable interest reported equal to all interest earned on the policy.
The only way to continue to defer taxable income is to 1035 exchange the entire annuity into a new one - or just keep the current annuity for a new term.
Similarly, Blueprint explained that I could pull 10% per year penalty-free from my Oceanview MYGA. The 10% would first come from interest earned, with any "leftover" coming from the original investment, if that's the right terminology. Doing it as a 1035 exchange to a new MYGA policy thereby deferred tax reporting on the interest earned until the new policy comes to term.
Please correct me if I'm misguided.
My next question - Do you plan to receive any funds when the oroginal MYGA ends its initial guarantee period? If you do, taxable income will be reported to you. But if you don’t receive any funds, either by re-upping with the same company or 1035 exchanging the entire remaining balance to a new annuity, taxable income will continue to be deferred.
At some final date, taxable income will be reported on your annuities, either when you receive funds from the annuities during your lifetime, or when your beneficiaries receive funds from the annuities that they inherit from you.
I apologize if I’m going into too much detail here, but I want to make sure to give the whole picture about taxable income on MYGAs. Annuities such as these defer, but do not avoid, taxation.
Let's try a simplified scenario (based on my reality).
Let’s say I invested $100,000 in a 3-year MYGA policy that went into effect on 3/1/21 earning 3.0%. On 2/28/23, I did a 1035 exchange of my allowable 10% penalty-free withdrawal ($10,300, to use a round number, the first $3,000 of which is interest that was credited on 3/1/22) into a new MYGA at a different company, thinking it would defer the $3,000 of interest (credited on 3/1/23) until the NEW MYGA comes to term. Then, on 9/1/23, I did another 1035 exchange of an allowable 10% (the first ~$3,000 of which is interest) into yet another new MYGA. So here I was thinking that I had deferred ~$6,000 interest to later years to avoid taxes.
My hope was that I could cash out of the original MYGA, receiving funds personally, when the term ends on 3/1/24 and only be responsible for the ~$3,000 interest that credits on that closing day of 3/1/24. Again, with hope that the other ~$6,000 interest is deferred until I cash out of the later two MYGAs, which I wouldn't intend to renew or exchange into yet new ones.
Is this scenario understandable? What will be the tax implications of this plan? Or anything I need to do different to maximum deferral of taxes?
Statistics: Posted by tj — Fri Dec 08, 2023 10:25 pm — Replies 2014 — Views 234247