I have an 82 year old married client who wants to move 165k from a Lincoln VA with the i4LIFE rider to an existing older fixed annuity guaranteeing 4%. After talking to Lincoln for him, they tell me that the income from the rider was taxed "a special way" so that he has taken more tax-free and less taxable money than the standard "taxable gain, then after-tax cost basis". So, he would have a higher taxable portion (81k) than normal if he were to surrender the Lincoln plan. He knows that ultimately, all the gain will be taxed, and he believes we are in some low tax rates for now. But still, having to include all 81k in this year's income is going to cause some noticeable bracket creep.
A 1035 exchange would be an easy fix for this, HOWEVER, the Lincoln person said that they had an IRS private letter ruling that allows them to refuse the exchange unless the receiving annuity were already set up on an income stream, i.e. annuitized. He doesn't want to annuitize his existing fixed annuities.
What he wants is the simplicity of a 4% guarantee versus the volitility of his Lincoln VA - even though 80% of the VA is in bond funds. The other thing he wants is to understand what he has. He had NO CLUE how his VA worked.
I'm not as familiar with the Lincoln rider, so I would appreciate any ideas on how he can move his money without the large tax hit this year.
A 1035 exchange would be an easy fix for this, HOWEVER, the Lincoln person said that they had an IRS private letter ruling that allows them to refuse the exchange unless the receiving annuity were already set up on an income stream, i.e. annuitized. He doesn't want to annuitize his existing fixed annuities.
What he wants is the simplicity of a 4% guarantee versus the volitility of his Lincoln VA - even though 80% of the VA is in bond funds. The other thing he wants is to understand what he has. He had NO CLUE how his VA worked.
I'm not as familiar with the Lincoln rider, so I would appreciate any ideas on how he can move his money without the large tax hit this year.
