FAQ’s – Annuities
Met Life Annuity Definitions – Glossary
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How is the amount of the required minimum distribution calculated?
Generally, a RMD is calculated for each account by dividing the prior December 31 balance of that IRA or retirement plan account by a life expectancy factor that IRS publishes in Tables in Publication 590, Individual Retirement Arrangements (IRAs). Use the:
See the worksheets to calculate required minimum distributions and the FAQ below for different rules that may apply to 403(b) plans.
What happens if a person does not take a RMD by the required deadline?
If an account owner fails to withdraw a RMD, fails to withdraw the full amount of the RMD, or fails to withdraw the RMD by the applicable deadline, the amount not withdrawn is taxed at 50%. The account owner should file Form 5329, Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts, with his or her federal tax return for the year in which the full amount of the RMD was not taken.
- Publication 560, Retirement Plans for Small Business (SEP, SIMPLE, and Qualified Plans)
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353. What is an annuity contract and what general rules govern the income taxation of payments received under annuity contracts?
354. How are annuity contracts held by corporations and other non-natural persons taxed?
Amounts Not Received as an Annuity
355. What tax rules govern dividends, cash withdrawals, and other amounts received under annuity contracts before the annuity starting date?
356. What penalties apply to “premature” distributions under annuity contracts?
357. Are dividends payable on an annuity contract taxable income?
358. What is the tax treatment of dividends where annuity values are paid in installments or as a life income?
Amounts Received as an Annuity: Fixed Annuities
359. How are annuity payments taxed?
360. How can the investment in the contract be determined for purposes of the annuity rules?
361. How is expected return computed under the annuity rules?
362. What is the annuity starting date?
Life Annuity: Single
363. How is the excludable portion of payments under a single life annuity computed?
Life Annuity: Temporary
364. How is a temporary life annuity taxed?
Life Annuity: Joint and Survivor
365. How can one calculate the excludable portion of payments under a joint and survivor annuity that continues distributing the same income to the survivor as was payable while both annuitants were alive?
366. How can one calculate the excludable portion of payments under a level payment joint and survivor annuity with refund or period certain guarantee?
367. How can one compute the tax exempt portion of payments under a joint and survivor annuity where the size of the payments will increase or decrease after the first death?
368. How is the tax exempt portion of payments determined for a joint and survivor annuity where the size of the payments will be reduced only if a specified annuitant dies first?
369. What are the income tax consequences to the surviving annuitant under a joint and survivor annuity?
Life Annuity: Refund Beneficiary
370. If an annuitant dies before receiving the full amount guaranteed under a refund or period certain life annuity, is the balance of the guaranteed amount taxable income to the refund beneficiary?
Fixed Period or Fixed Amount Installments
371. How is the excludable portion of an annuity payment under a fixed period or fixed amount option computed?
Annuity Reduced by Partial Withdrawal
372. What are the income tax results when an annuitant makes a partial lump sum withdrawal and takes a reduced annuity for the same term or the same payments for a different term?
Annuity Rules: Variable Annuities
373. Is the purchaser of a deferred variable annuity taxed on the annual growth of a deferred annuity during the accumulation period?
374. How are payments under a variable immediate annuity taxed?
375. How is the value of a refund or period-certain guarantee determined under a variable annuity contract?
376. If payments from a variable annuity drop below the excludable amount for any year, is the balance of the exclusion lost?
377. What is a wraparound or investment annuity? How is the owner taxed prior to the annuity starting date?
378. What is a longevity annuity?
379. Does the surrender of an annuity contract ever result in a deductible loss?
380. Is a deductible loss sustained under a straight life annuity if the annuitant dies before payments received by the annuitant equal the annuitant’s cost?
Sale or Purchase of a Contract
381. What are the income tax consequences to the owner of an annuity contract if he or she sells the contract?
382. How is the purchaser of an annuity contract taxed?
383. What are the income tax consequences when a policyholder exchanges one annuity contract for another?
384. What is the tax treatment for an annuity with a long term care rider?
Gift of an Annuity or Endowment Contract
385. What constitutes a gift of an annuity contract? What constitutes a gift of a premium?
386. Can the owner of an annuity contract avoid income and penalty taxes by assigning the right to receive the payments to another individual while retaining ownership of the contract?
387. What are the income tax consequences when an un-matured annuity contract is transferred as a gift?
388. Does the purchase of a joint and survivor annuity result in a taxable gift?
389. Is the naming of an irrevocable beneficiary under a refund annuity a gift?
390. When does the gift of an annuity between spouses qualify for the gift tax marital deduction?
391. What is the gift tax value of an annuity contract or of a donee’s interest in a joint and survivor annuity?
392. Can the purchase of a private annuity result in a taxable gift?
Surrender, Redemption, or Maturity
393. What are the income tax consequences when the owner of an annuity contract takes the lifetime maturity proceeds or cash surrender value in a one sum cash payment?
394. If a policyholder elects to receive endowment maturity proceeds or cash surrender values under a life income or installment option, is the gain on the policy taxable to the policyholder in the year of maturity or surrender?
395. Is the full gain on a deferred annuity or retirement income contract taxable in the year the contract matures?
396. If an annuitant dies before his or her deferred annuity matures, is the amount payable at the annuitant’s death subject to income tax?
397. What distributions are required when the owner of an annuity contract dies before the entire interest in the contract has been distributed?
398. If an individual purchases an annuity contract to meet alimony payments, how are payments taxed to the recipient? What are the tax results to the purchaser?
Gifts and Charitable Gifts
399. May a charitable contribution deduction be taken for the gift of a maturing annuity or endowment contract?
400. Is there a taxable gift when an individual covered under a qualified plan, a tax sheltered annuity, or an individual retirement plan irrevocably designates a beneficiary to receive a survivor benefit payable under the plan?
401. Is there a taxable gift when a nonparticipant spouse waives the right to receive a qualified joint and survivor annuity or a qualified preretirement survivor annuity?
402. Can community property law create a taxable gift by the spouse of an individual who designates a third party beneficiary to receive a survivor benefit payable under a qualified plan, a tax sheltered annuity, or an individual retirement plan?
403. If a person who is covered under an individual retirement plan contributes to a similar plan covering his or her non-employed spouse, are such contributions considered gifts?
404. Are amounts received under commercial annuity contracts subject to withholding?
405. How are payments received under a private annuity taxed?
406. What are the tax consequences to the obligor in a private annuity transaction?
Charitable Gift Annuity
407. How are payments received under a charitable gift annuity agreement taxed?
408. What are the tax consequences to the obligor in a charitable annuity transaction?
409. How is a corporation taxed on payments under an annuity contract or on living proceeds from an endowment or life insurance contract?
410. How are damage payments taxed if an annuity is used to fund a judgment or settle a claim for damages on account of personal injuries or sickness?
411. What is the requirement to maintain minimum essential coverage?
412. What is the penalty for an individual who chooses to remain uninsured?
413. If a qualified plan trust distributes an annuity contract to an employee, is the value of the contract taxable to the employee in the year of distribution?
414. How is an employee taxed on periodic retirement benefits under a qualified pension, annuity, or profit sharing plan?
415. How are variable annuity benefits payable under a qualified pension or profit sharing plan taxed to an employee?
416. Does the interest of a donee spouse in a joint and survivor annuity qualify for the marital deduction?
417. What are the estate tax results when a decedent has been receiving payments under an annuity contract?
418. What are the estate tax results when a decedent has been receiving payments under an optional settlement of endowment maturity proceeds or life insurance cash surrender value?
419. If an individual purchases a deferred or retirement annuity and dies before the contract matures, is the death value of the contract includable in his or her estate?
420. In the case of a joint and survivor annuity, what value is includable in the gross estate of the annuitant who dies first?
421. What is the estate tax value of a survivor’s annuity under a joint and survivor annuity contract?
422. In the case of a refund or period certain annuity, is the balance of the guaranteed amount, payable after annuitant’s death, includable in the annuitant’s gross estate?
423. Are death proceeds payable under a single premium annuity and life insurance combination includable in an annuitant’s gross estate?
424. If a decedent purchased an annuity on the life of another person, will the value of the contract be includable in his or her gross estate?
425. If a person makes a gift of an annuity, will the value of any refund be includable in the donee-annuitant’s estate?
426. If a decedent has been receiving payments under a private annuity, what is includable in the decedent’s estate?
Nonqualified Employee Annuity
427. Is the value of a death benefit payable under a nonqualified employee annuity includable in an employee’s gross estate?
Tax Sheltered Annuities
428. Is a death or survivor benefit under a tax sheltered annuity includable in an employee’s gross estate?