Are Surrender Charges On Annuities Tax Deductible?

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Are surrender charges on annuities tax-deductible? Wow, now that's an interesting question. Hi there.

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I'm Stan the Annuity Man, America's annuity agent, licensed in all 50 states and Puerto Rico because

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we do have a Spanish division if somebody's watching out there and wants to do that. Top agent

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in the country, pioneer of contractual guarantees only. And also, too, Big C behind the camera,

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the only company in the annuity space to have hired the top death metal logo person in the

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country — I mean, in the world. He's in Europe to do the Annuity Man rock and roll death metal logo. So

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I walked in and Big C's like, "What is that?" I'm like, "That's rock and roll,

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man. I mean, that's what we do. We rock and roll." If you went to my office in Las Vegas,

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which you can't because you're not invited — and it's locked — there's guitars everywhere.

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I'm a frustrated guitar player, but they're just guitars hung everywhere. So,

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I mean, that's what happens when you're a frustrated guitar player is you just buy a lot of

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guitars. What does that have to do with surrender charges? A lot. Because we're rocking and rolling

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when it comes to that. And we're going to discuss that and the taxability or non-taxability of it,

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which is a really interesting question, which is why I wanted to discuss it after this.

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Are surrender charges on annuities tax-deductible? Let me answer it a couple of ways. So,

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wait for it. It's going to be fun. So, the first answer is surrender charges only

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happen on deferred annuities like a multi-year guarantee annuity. Okay? A fixed indexed annuity,

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a variable annuity, of which we don't sell. In other words, if you cashed it in before the

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surrender charge time period, you're going to pay a percentage penalty to get out. Now, 99.9999999%

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of my clients — and we have a quadrillion, at least a quadrillion — they don't do that because we don't

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improperly sell things. Okay? You know, that only happens if the guy goes, "What? You put

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me in a 10-year annuity?" No, I mean, the point is surrender charges only happen, and they're

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declining, and they're aggressive. Like, for instance, a multi-year guarantee annuity is the

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annuity industry's version of a CD. And let's just say you bought a five-year — they're

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all different, the surrender charges — but it might be if you cashed out the first year it's 9%,

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then 8, 7, 6, 5. It declines. So you'd have to pay a percentage of that. Now,

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last time I checked — and I'm not a tax lawyer or a CPA, so you check with them to see if the

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rules have changed — but it is not tax-deductible, okay? It's called, you know, I wrecked the car

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and I got to fix the bumper. You know, it's one of those things. Now, immediate annuities, deferred

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income annuities, qualified longevity annuity contracts, which are all lifetime income products,

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there are no surrender charges because there's no liquidity. These are pension products. You're

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ripping, in essence, the knob off a water faucet, okay? And the water's flowing. In this case,

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water is income. So, we're really only talking about the deferred space where you're buying a

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specific — in my world, a fixed annuity, which would be either a multi-year guarantee annuity (MYGA)

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or a fixed index annuity (FIA) — and they would have surrender charges, of which we're going to

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be fully transparent and let you know what those are. But the reason that we don't have issues with

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that is we properly place those and we don't do any high pressure. I mean, everybody in my office,

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in my Las Vegas office, everybody under one roof, they're all licensed in all 50 states, but they're

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not on commission. Okay? The bonus that they get is discretionary from moi — that's French

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for me — based upon client satisfaction and some things that we observe them doing pro-client,

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but it's not how many you sell, how much you sell, how much sale, sale, sale — no, no, no. That's not it, okay,

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for us. And that's what sets us apart. We have no, you know, agents that work in other states.

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We're in one location under one roof. All of the policy stuff happens there. All of the

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application stuff happens there. All of the interactions with my — what I call my client

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solutions team — happens under that one roof in Las Vegas. She goes, "Wait a minute,

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Stan. Why Las Vegas?" I don't know. Why not? It's really the main reason was because we want to be

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open 12 hours a day. We're open from 8:30 to 8:30 East Coast, which means 5:30 to 5:30 West Coast,

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and then we're open 9 to 5 on Saturday, which is a lot. I think that's 68 hours a week,

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which nobody — I mean, we're going to work around your schedule, okay? But getting

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back to the question about tax deduction of surrender charge. The answer is no, okay?

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If your CPA — if you go to them and say, "I don't believe, Stan. I think he's a nut. He's a nut is

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what he is. Crazy." That might be true. But you go to them, you say, "Is it tax-deductible?"

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If your CPA and tax lawyer, they find something in the code that says it is, then tell me about it.

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But I don't think so, okay? What happens is you got to be real careful when you look at

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annuities. Hopefully you're working with us. If you're working with us, you're not going

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to have an issue. But if someone's high-pressured you into something and you really don't know what

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you bought. First of all, shame on you for being high-pressured. The cool part about it is you do

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have a free-look time period, which you can get out without talking to the agent. For any reason,

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you can get out. You don't even have to provide a reason. You just call the carrier and say, "I

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don't want — I don't want this. Send me my money." But there's a specific — specific, not pacific,

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okay? Specific time period each state has that you have to alert the carrier. Alright? But

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you know, taxes — again — and I've done a few recent videos on taxes and taxes with annuities. I tell

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you what — what I found for a long, long time is the IRS lives rent-free in a bunch of your heads.

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They just live there. I mean, you're just obsessed with trying to beat them, with

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trying to figure out ways around them. It confounds me to no end because you're not going

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to beat them. They're not going away. Taxes are probably going to go up because of our debt that

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the country has at the time of this taping. I'd rather just go live your life. Pay the taxes

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that are there. Work with your CPA, tax lawyer. It's their job to tell you about the loopholes and

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how to maximize — not an agent, not an advisor — CPA and tax lawyer. We work with them all the time,

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but we do not provide tax advice. And the only person that I would believe if you came

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back to me and said, "Let me tell you something, Stan. I typed it in and AI said it's tax-free." I

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don't care. I want to hear from the tax lawyer and have he or her — he or she — sign off on it,

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sign off on it. Annuities solve for four things: principle protection, income for life, legacy,

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and long-term care. And you ask two questions to see if you even need one. First

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question is, what do you want the money to contractually do? Second question is, when do you

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want those contractual guarantees to start? From those two answers, we can determine A, if you need

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an annuity at all — you might not, that's okay — or B, you might need one. And here are the

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structures. Here are the types that would provide the highest contractual guarantee. We shop all

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carriers for the highest contractual guarantee. If it's lifetime income, it's A+ or better because

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you don't need a sweater. Just because it rhymes — I like that. But A+ or better for lifetime income.

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If it's fixed-rate annuities like MYGAs, we can go a little bit lower than that because we're dating

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that company. We're not going to marry the company like we will with lifetime income. Alright?

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So if I can achieve one thing today, it's to have you stop trying to beat the IRS

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because you're not going to beat them. And also, you're wasting time. And also, you're analyzing.

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I'd rather you look at your hand and go, "Look at that lying in my hands. It's so fascinating when

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one goes that way and one goes that way." That's more fruitful. That's more fruitful than trying

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to beat the IRS, okay? It just is. Don't go into gray areas. Work with your CPA. Work with your

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tax lawyer. And if you have a situation with surrender charges that you want us to review,

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we will do that — no fee — everything we do is a free consultation. We get paid if you

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decide to purchase an annuity — and we deem and agree upon the fact that it

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fits your specific situation contractually. Then the company pays us a commission, but it doesn't

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come out of your amount. It comes out of their reserves. So, it's a net transaction to you. So,

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we're looking for you to get the right solution. That's our goal, okay? Do me a favor. Above my

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head is a video that I did on contractual guarantees only. Since I pioneered this in

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the annuity space — and a lot of people are now following me, which is fine — I want them to do

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that because annuities are contracts or contracts between you and the issuing life insurance company

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that issued the annuity. So, because of that, we focus solely on the contractual guarantees,

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not the hypotheticals or the theoreticals or the projections or the unicorns chasing the

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butterflies. You own an annuity for what it will do, not what it might do. And the will-do

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are the contractual guarantees. Feel free to reach out to us. Go to my site at theannuityman.com.

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Shoot me an email at [email protected], and I will respond. See you next time.