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Retirement Planning > Retirement Investing > Annuity Investing

Ask the expert: Can he sell his annuity?

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The question was: My client is interested in selling his annuity but is unsure about the tax implications of such a transaction. Can you provide an overview?

The answer is: Since an annuity is a piece of property, it can be sold. Generally, when there is a sale, the owner is taxed in the same way as when there has been a complete surrender.

If the sale occurs after the owner has begun payout provisions, the cost basis is adjusted for those amounts that have been received but were not includable in income.

Apparently, if the sale has resulted in a loss, because the sale proceeds are less than the cost basis, the owner will have realized an ordinary loss. Such losses generally may not be deducted by individuals who entered into the annuity contract for personal reasons but may be claimed in connection with the owner’s trade or business or in a transaction entered into for profit. [IRC Sec. 72(s)(1).]

If the new owner elects to take payout provisions, the payments will be taxed in the same way they would have been had the original owner retained the contract, except that they will be calculated with the new owner’s life expectancy, etc. If the new owner is a corporation or other nonnatural person, those provisions will apply to annual increases in the contract values.

Source: This is an excerpt from The Variable Annuity Handbook, 2nd Edition (2005), by Gary H. Snouffer, J.D., CLU, pp. 221-222. The book is published by The National Underwriter Company, Cincinnati, Ohio, which also publishes the Annuity Sales Buzz e-newsletter. Both publications are products of Summit Business Media LLC, Erlanger, Ky.


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