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Jun 15, 2017 by |

San Francisco County and California Annuity Attorneys: Annuities and Taxes

ATTORNEY NEWSLETTER

Beware Annuity Sales Hype

Always Think About Taxes

Incomplete information is worse than none at all, particularly when it comes to annuities and taxes. The attached article is an example of incomplete sales talk; the salesman leaves out the most important component of sound retirement planning: tax deferral. You need to understand the tax issues when considering annuities for retirement. Below, we highlight two major tax problems. If you or a loved one has suffered a tax loss as a result of an unsuitable annuity, IRA, or other retirement account, please contact the annuity fraud and financial elder abuse lawyers at Evans Law Firm at (415)441-8669, and we can help. As California lawyers, we only handle cases in California.

First, if you decide an annuity is right for your IRA or 401(k) make absolutely sure the annuity is a qualified (tax deferred) plan. “Qualified” versus “Non-Qualified” plans are ERISA (Employee Retirement Income Security Act) terms; the IRS follows those labels in determining whether your plan is tax deferred (“Qualified”) or taxed currently at ordinary income tax rates (“Non-Qualified”). Once the plan is designated one way or another, the designation cannot be changed and the tax consequences are permanent. We at Evans Law have represented buyers who thought their annuities were in a qualified plan only to find out later the account had never been set up properly. We are not ERISA or tax lawyers, but we can represent California residents who have suffered tax losses due to an incorrect plan designation.

Second, if you decide to rollover an existing IRA or 401(k) annuity into another annuity, you are always better off doing a tax free exchange, referred to as a 1035 exchange. In a 1035 exchange the carriers exchange qualified policies for you without you having to surrender one, get the money, and buy the other. Salesman will try and talk you out of the 1035 exchange because it can take several months for the two carriers to process the exchange. Don’t let them; when you surrender, take the money, and buy the new contract, you are very likely to be taxed on the total of your surrender amount. The IRS will not tax a proper 1035 exchange; any other transaction will likely be taxed. We are not ERISA or tax lawyers at Evans Law Firm but we can help you if you have suffered tax damages as a result of a botched 1035 exchange or poor advice.

Proceed with Caution

Always review the tax consequences of an annuity with your accountant or tax preparer before you buy. Be especially wary of annuities as retirement plan vehicles; they are complex and dangerous, often unsuitable, and the tax consequences can be disastrous. Don’t lose tax deferral benefits; annuity withdrawals may be subject to tax prematurely. Resist high-pressured sales pitches or agents who gloss over details. Refuse quick decisions. Consult an independent financial consultant or counsel who is not compensated by sales commissions. Talk to your accountant or tax preparer. Take your time and get professional help.

Contact Us

If you or a loved one purchased an annuity or other investment contract from which you or a loved one has experienced a tax penalty or other financial loss (beyond that of reasonable investment risk) in San Francisco County or anywhere in California, contact the Evans Law Firm annuities, financial elder abuse, and fraud attorneys at (415) 441-8669, or by email at info@evanslaw.com. Our attorneys have experience with annuities, life insurance, and large insurance companies. We can help guide your case through a jury trial or toward an equitable settlement. We handle cases involving physical and financial elder abuse, qui tam and whistleblower law, nursing home abuse, whole life insurance and universal life insurance, and indexed, variable, and fixed annuities.
Some of the major annuity and life insurance providers in California are:

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