How Are Fixed Annuities Taxed?

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Hi there, Stan the Annuity Man. Question of the day, how are annuities taxed? How are fixed

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annuities taxed? Keyword: tax. You know, it upsets me that the IRS lives in our head rent-free,

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but they do. One of my missions in life is to prevent that so that you go live your

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life. We're going to talk about how annuities are taxed so at least you know on a 30,000-foot view,

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but I don't want you to get fixated with it and just live by that. And too many people

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that call me are living— it's kind of like the IRS is dictating how they're going to live,

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and they're trying to beat them, and they're trying to beat him. You can't, you know? Let's

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just do the best we can. We're going to talk realities, as only Stan the Annuity Man can.

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And oh, by the way, licensed in all 50 states and Puerto Rico. Office is based in Las Vegas. It's

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kind of funny because all we do is contractual guarantees, and that town is all about risk.

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But, you know, we put it there so we can be open 68 hours a week,

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12 hours a day and 8 hours on Saturday. But we're going to talk about all of this after this.

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So, how are fixed annuities taxed? Well, if you're not in a Roth IRA, Roth IRA,

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it's not taxed. You've already paid all of those upfront taxes to the IRS. And hopefully that

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calculation is working in your favor from the standpoint of break-even point.

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But if you have annuities inside of an IRA or if you have annuities

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outside of an IRA in a non-IRA account, we call it non-qualified, it's non-IRA,

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that money coming out, those earnings are taxed at ordinary income levels at the time of this taping.

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Now, I need to be very clear that you should take no tax advice from anyone other than a CPA

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or a tax lawyer or someone who is qualified to give tax advice. I think there's some

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RIA, registered investment advisors, that's passed some type of tax certification

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within their CFP model that they can do that, but you know Johnny Appleseed agent down the road, me,

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you know, even though I've been doing it for 30 years and forgot more than most people ever know

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about all of this, not qualified for that, don't want to be qualified for that.

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In fact, one of my many lawyers that surround me and hug me, make me feel safe— he's a tax lawyer,

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and he literally went to the University of Florida and decided, without someone putting a

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gun to his head, to specify in taxation. And I looked at him, I went, what would possess

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a person to just focus on that? That's crazy. That's like I'm going to study vomit.

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I'm going to look at all types of vomit— vomit from animals and vomit from people and vomit from

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different countries— I mean, to me, I'd rather analyze vomit. I'm kidding.

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I pay my taxes, man. I pay my taxes because my wife makes sure that we pay taxes. She's

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in charge of the taxes. She deals with the CPAs, and then I'm like, whatever, man,

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whatever. My point is don't let the IRS live in your head for free.

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I mean, people say, "Well, I'm gonna get tax-free income, Stan. I'm gonna get tax-free

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income from that Roth." Hey, player, you already paid a crapload of taxes to make it into a Roth.

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Or the people that say, "Well, I'm gonna get a life insurance policy and just take a loan off of

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it, and that's tax-free income." No, player, that's a loan. That's not tax-free income,

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alright? Stop trying to thread the needle. Annuities

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can be tax-deferred. That's one of the great things about them.

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In 1954, TIAA-CREF introduced the first variable annuity for tax-deferred growth. You can buy MYGAs

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or index annuities for tax-deferred, "CD-type growth." Notice I said CD-type growth

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with index annuities, so don't think that you're getting market growth with that. You're not. But

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you're going to have to pay taxes when you take out those gains at ordinary income levels.

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Even with immediate annuities, which is the granddaddy of all lifetime income products— keyword:

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immediate, okay? So it can start as soon as 30 days from when the policy is issued, as far out as

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a year deferral. That income, let's say it's in a non-IRA account, that income is a combination

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return of principal plus interest. You're going to have to pay taxes on the interest portion, okay?

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And if you outlive your life expectancy, then all of it's going to be taxable if you draw

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the account down to zero. You're not going to beat the IRS. Please stop trying. Please stop

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making it a side job for you in retirement on how do we pay the least amount in taxes, how do

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we circumvent IRMAA and whatever other things are out there that you're trying to not pay taxes on.

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Why not just go enjoy your life? Why not just set a lifetime income floor up for you

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and factor in the taxes and then go live your life in chapter 2?

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Go see the kids and the grandkids and buy the fifth wheel and buy the RV and travel and eat out.

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Buy the drink, as they say. You know why I say buy the drink? Okay, tell that story.

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My Mom and Dad passed away about seven years ago, but if he was here, he'd still do it.

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They go to the restaurant— drinks are expensive. I'm telling you right now,

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we're not doing that. Let's order two waters and a bunch of lemons, squeeze the lemons in the water,

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put Sweet'N Low in the water with lemons, and call it lemonade— table

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lemonade. Buy the drink. Forget carpe diem— buy the drink.

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So, are you going to pay taxes on annuities? Yeah. Ordinary income levels at the time of this taping.

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But put it in the back of your head— not the IRS, this thought. At the time of this taping,

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if you go to New York and you see the building where they have the debt clock, I used to walk

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by there eating a bagel and go, "That's not good." It's at 39 trillion and counting.

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I saw some smart dude the other day and say, "I think it's 100 trillion if you count all in."

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Great, okay, super. What does that mean to me and you, who worked, scrimped, saved,

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done without, paid the tuition in full for our kids, drove the crappy car for a long,

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long time— not doing that anymore— but we've done it the right way?

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What's that mean to us? What do you think it means? I mean, you know what it means.

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They're coming, man. They're coming. They're coming. The people that don't have money,

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whether it's self-inflicted or just a bad turn of luck, they're going to vote for our money

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to get more of it, to confiscate it.

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Craziest thing I've heard recently was politicians talking about, let's tax unrealized capital gains.

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And you're saying, Stan, what in the world are you talking about? Let me put it in Stanglish for you.

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Unrealized capital gains is you own a house and you paid $100,000 for the house,

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and it's now worth $500,000. Unrealized capital gains means the politicians want you to pay taxes

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on the $400,000 gain even though you haven't sold it yet.

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This has been happening for large farmers in, say, Iowa and ranchers in Texas where they died,

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they don't have the estate in order, and they have to sell the ranch or the farm to pay the taxes.

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I'm not scaring anybody. I'm just saying let's think logically. Let's live life right now.

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My newest saying that some people hate and some people love— and I don't really care either way

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because it's the truth.

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I'm warning you, Big C out behind the camera, I don't want you to spit out your drink.

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Eventually, we're all going to be drooling into a cup and shitting in our pants.

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And if you say, "Well, that depends." Exactly, that's what you're going to be wearing, okay?

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So why not let's put the contractual guarantees in place? Let's build up that income floor.

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Let's build up those contractual guarantees so that you can enjoy things

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while you're not drooling and shitting in your pants.

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One of the worst things I ever saw was my Dad

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before he died. And if you ever saw the movie The Great Santini or read the book The Great Santini

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by Pat Conroy, do that. That was my Dad. My Dad was a mfer. He was a bad dude, man, and he didn't

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take shit. But at the end, he was shitting on himself. At the end, my Dad wore a diaper.

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At the end, my Dad, who had scrimped and saved and really not enjoyed the money, couldn't.

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Those type of things leave a scar. My wife calls it the scars of scarcity.

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And what the scars of scarcity means is that a lot of us grew up poor or without or did without or

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scrimped and saved and were taught to do that. And even with money, we still do that. Nod your head.

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Nod your damn head. Yes, I'm right. I'm sorry to cuss a little bit. I need to get your attention.

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This topic was on taxes. How are annuities taxed? Ordinary income levels. But that's

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not the point. The point is you. The point is putting things in place and living life right now.

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One of the fun things that I'm doing— I'm going to close with this— is these hats I wear. You know,

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I have fun with them and everyone always asks for them. And I'll send you one if

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you're a client— you get one anyway. But if you're thinking about being a client, you can

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send me an email, [email protected]. As long as we have them, I'll ship them to you.

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But there's one catch. You have to send me a picture of you in it in a place where you're

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traveling or a restaurant that you never go to. That's the key, okay?

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You know, my job as the annuity man is to educate and entertain, edutain you

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so you can make a good decision on your terms and your time frame. But my other job, as I get older,

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is to remind you that we're all getting older, okay? And taxes are an issue,

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but they're not the biggest issue. The biggest issue is you, okay? And your lifestyle.

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Do me a favor. I actually talked about lifetime income in this video above me. See the clock

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spinning? I would encourage you to look at that because right now lifetime income is a bargain

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because the life expectancy tables are a bargain. I explain why, but you need to look at that.

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And you know, when you talk to us and schedule a call, we'll talk about how things are taxed.

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We're not tax advisors, but we'll tell you. And you just need to nod your head and go, "Yep,

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I'm gonna factor that in. I'm gonna move on." Alright? Is that a deal? Nod your head. Absolutely.

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My name is Stan the Annuity Man. See you next time.