Tax therapy of SPIA earnings when the supply $ was from a 1035 alternate

evestor wrote: ↑Tue Sep 03, 2024 1:06 am
I’ve learn on this board, and researched elsewhere (thanks for the nice movies Pungent!), the worth of proudly owning MYGAs and doing a 1035 alternate as I roll from one MYGA to the subsequent through the years. I am serious about doing this. I might do that in taxable accts.
I’m pondering my exit technique (I wish to suppose forward ). My pondering is I’ll ultimately 1035 alternate these funds into SPIAs. Which I’m result in imagine is a completely fantastic factor to do (if I am improper please right me).

I perceive the standard tax therapy of a SPIA in taxable…exclusion ratio, and so forth.

However my query is: if I’ve $X I plan to 1035 alternate right into a SPIA, and say that $X is definitely comprised of 30% of principal and the opposite 70% is untaxed gathered curiosity I have been 1035ing ahead for years, what’s the tax therapy of earnings from the SPIA once I 1035 this $X into it? Does it differ from the standard SPIA tax therapy? I determine it should?

If there’s a submit on this nuance I’ve missed please direct me. I seemed…whether it is on the market my search talents are failing me tonight.

Thx!

I need to say – you ask a wonderful query, and one which I haven’t considered earlier than.

I believe that the “simple” reply to your query is that 70% of every cost is earnings, and 30% is untaxed return of foundation, till your foundation is totally recovered at which period it switches to 100% earnings.

However then I take into consideration what the tax reporting can be in case you simply approached the insurer to purchase a taxable SPIA for money. Let’s say in that case that fifty% of every cost is earnings, and the remaining 50% is return of foundation. (Percentages are purely hypothetical).

Evidently the SPIA bought together with your cumulative MYGA earnings ought to have one thing much like your 50/50 tax therapy of a cash-purchased SPIA. That’s as a result of a part of your earnings on the MYGA-purchased SPIA is curiosity on that buy.

I’m going to make a guess that the 50% multiplier carries over to the MYGA-purchased SPIA. That may make the MYGA-purchased SPIA funds 70% + (50% x 30%), or 85%, taxable earnings, till foundation is totally recovered.

That is simply an extrapolation of fundamental ideas (in different phrases, a guess ) on my half. You possibly can ask your agent about this, however I anticipate that they’ll simply scratch their heads too.