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GILICO Annuity Overview

Annuity Glossary
Annuity FAQ
Annuity Calculators

Deferred Annuities Immediate Annuity
Flexible Premium
Market Value Adjusted (MVA)
Immediate Payout Annuity
Continual payments can be made to the insurance company (amount dependent on policy provisions) Only one payment is made to the insurance company Payouts begin immediately or within one year.
Important Information about Annuities

Tax Status of Annuities

Qualified - Purchased with Before Tax Dollars - Premium IS Tax Deductible.

Non-Qualified - Purchased with After Tax Dollars - Premium is Not Tax Deductible.

Qualified and Non-Qualified Money cannot be mixed!

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The Four Basics of Annuity Taxation

  1. Withdrawals
    You will pay taxes only when interest is withdrawn. Withdrawals from annuities are taxed in one of two ways depending upon when the annuity was issued. Annuities issued prior to 8/14/82 had FIFO accounting (first in, first out). Since principal was first in, it came out first, tax-free. With annuities issued on 8/14/82 and thereafter, taxation changed to LIFO (last in, first out). Simply put, withdrawals are now taxable since interest is withdrawn first. Many of your clients will appreciate paying taxes only when interest is withdrawn since most of them are now paying taxes on interest even if they don't withdraw it.

  2. The 10% Excise Tax Penalty
    Just like an IRA, there is a 10% excise tax penalty on premature withdrawals. The government extends tax advantages to the annuity for retirement purposes. The government also extends tax disadvantages to taxpayers who do not use the annuity for retirement. All interest withdrawn prior to the owner being age 59-1/2 will be subject to a 10% excise tax penalty.

    Are there exceptions? Yes, here are some of the most common.

    Six Ways to Avoid the 10% Excise Tax Penalty
    1. Don't withdraw until owner is age 59-1/2
    2. Disability of taxpayer
    3. Distribution from a pre 8/14/82 annuity
    4. Death of owner (may not be owner's preference)
    5. Payout from an immediate annuity
    6. Substantially equal payments over taxpayer's life expectancy

  3. The Exclusion Ratio
    When and if the owner annuitizes (applies their annuity value toward a payout option), the annuitant will receive equal monthly payments. An exclusion ratio is applied to each payment received. A percentage of each annuity payment is considered a return of the owner's cost basis (principal) and is tax-free. The balance is taxable.

  4. 1035 Exchanges
    One unique tax advantage with annuities is that you can transfer money from one annuity to another annuity income tax-free. The provision in the Internal Revenue Code that allows this is section 1035(a). However, great care should be exercised when making a 1035 exchange.

    Five Important Tips for 1035 Exchanges

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Just Say NO to 1099's

Nothing beats the power of tax-deferred growth! If you are just reinvesting the interest from your CD, you're losing out on 33% of your growth!

Unlike a bank CD, an annuity offers interest that grows tax-deferred. No income taxes are due until the funds are withdrawn. The graph below shows the difference this tax-deferred advantage can make. If you are still paying taxes on your interest, you'll be pleased to know that there is a sensible alternative.

This calculation assumes $100,000 invested at 3% effective annual yield tax-deferred compared to 3% EAY in a 33% tax bracket.

With a GILICO annuity, you can take advantage of triple compounding. You will:

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When does 3% = 4.48%? When you're in a GILICO tax-deferred annuity!

This table tells you at a glance the interest rate a bank CD (or other taxable savings product) would have to generate to equal the net earnings of a tax-deferred annuity. Unless your CD is an IRA, the interest is taxable even if it is left on deposit with the bank.
Table of "Equivalent After Tax Yields"
Rate for Tax-Deferred Annuity Equivalent CD Rate in a 33% Tax Bracket
3.00 4.48
3.25 4.85
3.50 5.22
3.75 5.60
4.00 5.97
4.50 6.72
5.00 7.46
5.25 7.84
5.50 8.21
5.75 8.58
6.00 8.96
6.25 9.33
6.50 9.70
6.75 10.07
7.00 10.45

Formula for After Tax Yields:

GILICO Annuity Rate
1 - tax rate
= Equivalent After Tax Yield
Example:  

3% Annuity Rate
1 - .33 = .67

= 4.48% Equivalent Yield

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Are you Tired of Paying Taxes on Your Social Security Benefits?

Did you know that you could be paying taxes on up to 85% of your Social Security benefits?

If your combined income (50% of your Social Security payments, plus all other income (including tax-exempt interest) is between:

Married filing jointly:
$0 - $32,000:
none of your Social Security benefits are taxed
 
$32,001 - $44,000:
up to 50% of your Social Security benefits are taxed
 
$44,001 and over:
up to 85% of your Social Security benefits are taxed

Case Study:

Assets:
 
Combined Income Formula
 
*Pension income:
24,000
Pension Income:
24,000
*Dividend Income:
4,000
Taxable Income:
15,000
*Muni Bond Income:
3,000
50% Social Security Benefits
5,500
Bank CD Interest Income:
8,000
   
Social Security Income:
11,000
 
Total Assets:
50,000
     Combined Income:
44,500
*Optional Income

In the above example, the total assets of $50,000 exceeds the $44,000 limit for married couples, and therefore this family is paying tax on 85% of their Social Security benefits. If they aren't living off their investments, a GILICO annuity is a much better place for their money.

Assets:
 
Combined Income Formula
 
Pension income:
24,000
Pension Income:
24,000
Annuity Income:
0
Taxable Income:
0
Social Security Income:
11,000
50% of Social Security Benefits:
5,500
 
 
     Combined Income:
29,500

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Do You Want Your Heirs to Get More of Their Fair Share?

Another important benefit of an annuity becomes apparent should the annuitant or owner pass away. At death, the value of a GILICO annuity (with properly designated beneficiary other than the annuitant's estate) is passed on to heirs without the expense, delay and frustrations of probate.

Proceeds from a non-IRA bank CD, on the other hand, can be subject to:

Loss of Money
probate administration fees up to 10%
Time & Frustration
delays up to two years while the courts settle the estate, and
No Privacy
potential public inspection because a decedent's assets are public record

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What Happens to My Money If I Die?

 

IMPORTANT INFORMATION FOR ANNUITY DEATH BENEFITS
- Annuities Avoid PROBATE Costs and Delays.
- Annuity Value is Includable for ESTATE and INHERITANCE Taxes.
- Interest Income is Received as "Income in RESPECT of DECEDENT."
- DEDUCTION is Allowed Against Income for Estate and Inheritance Taxes.
- The ONLY way to get an asset out of an estate is to GIVE IT AWAY!
- The Decision is one of "Control & Pay Tax" or "NO Control & NO Tax."

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How Annuities Compare to "the Competition"

Feature
Annuities
IRAs CDs Muni Bonds Govt Bonds EE Bonds
Tax-Deferral
Yes
Yes
No
N/A
No
Yes
Tax-Free
No
No
No
Yes
No
No
Tax-Deductible
No
Yes
No
No
No
No
Market Risk
No
Yes
No
Yes
Yes
No
Safety of Principal
Safe
Varies
Safe
Varies
Safe
Safe
Surrender Charge(s) on Early Withdrawal
Based on Contract
Possible back-end sales charge
Penalties on interest
None
None
Moderate
Tax Penalties on Early Withdrawal
Possibly harsh
Possibly harsh
None
None
None
None

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