Favorable Times to Withdraw Money from Your Fixed Annuity

While fixed annuities provide both safety and tax-deferred interest accrual for millions of retirement savers, fixed annuity owners cannot avoid taxation indefinitely. This is perhaps their chief disadvantage, as all interest income that is distributed from an annuity is taxed at the annuity owner’s top marginal tax bracket. However, there are three instances in which one can gain some relief when taking distributions from fixed annuities. The first scenario applies to small (or large) business owners who declare an operational loss for the year on their tax returns. As long as the business is not considered a passive activity, the loss can be used to cancel out other types of income, such as investment income. For example, if a shopkeeper realizes an operating loss of $15,000 in a given year, then he or she could take a $15,000 fixed annuity withdrawal that same year and credit the loss against the income, thus effectively making the withdrawal tax-free. Another good way to exempt your fixed annuity distribution from annuity taxation is to designate a qualified charity as the beneficiary on the contract. After you pass away, the charity will then receive the proceeds of the annuity, with no income or estate tax [...]

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