One of the benefits of an annuity is that earnings accrue on a tax-deferred basis. However, depending on the type of contract you own, a withdrawal may result in a tax-reportable event.
Withdrawals and Your Annuity Contract
If you have a nonqualified annuity contact
||All earnings (but not principal) will be tax reportable and are taxable at the ordinary income rate.
||If money is transferred as part of an exchange of contracts under Section 1035 of the Internal Revenue Code, the tax treatment may vary.
If you have a qualified annuity contract
||All withdrawals are tax reportable.
||Withdrawals sent directly to other financial institutions into qualified plans may or may not result in a tax-reportable event.
Not sure if you need to report a withdrawal? Click here to view a chart of withdrawal events and their subsequent tax consequences.
Important Dates to Remember
Mark these dates down on your calendar to best prepare for tax season.
||Required minimum withdrawals have to be taken by the end of the month.
||1099-R forms are mailed before the end of the month.
What is a Form 1099-R?
When you withdraw money from your annuity (also known as a distribution), the insurance company will send you and the IRS a Form 1099-R with information to help you prepare your income taxes.
– Tax returns DUE
– Last day to make IRA/Roth contributions for the previous year
||5498 forms are mailed.
What is a Form 5498?
Form 5498 is a required tax form that notifies both the client and the IRS of: total contributions, any rollovers, year-end account values if a contribution or rollover occurred, and any required minimum distributions (RMDs).
When considering an annuity for use in an IRA or other tax-qualified retirement plan (i.e., 401(k), 403(b), 457), it is important to note that there is no additional tax-deferral benefit, since these plans are already afforded tax-deferred status. Thus, an annuity should only be purchased in an IRA or qualified plan if some of the other features of the annuity are of value, such as access to specific portfolio choices, the ability to have guaranteed payments for life and other guaranteed benefits, and you are willing to incur any additional costs associated with the annuity to receive such benefits. See the prospectus for details.
Neither John Hancock Life Insurance Company (U.S.A.), John Hancock Life Insurance Company of New York, John Hancock Distributors LLC, nor any of their representatives provide tax, accounting, or legal advice. Any tax statements contained herein were not intended or written to be used, and cannot be used, for the purpose of avoiding U.S. federal, state, or local tax penalties. Please consult your own independent advisor as to any tax, accounting, or legal statements made herein.