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11 Confusing Annuity Tax Rules Financial Advisors Should Know

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Related: 11 Questions Clients Have About Annuities and Taxes

Annuities, or long-term investment contracts issued by insurance companies, are designed to help protect investors from the risk of outliving their income.

There are several types of annuity contracts, each with their own level of risk, payout potential, and associated tax rules. One of the main tax advantages of annuities is they allow investments to grow tax-free until the funds are withdrawn — including dividends, interest and capital gains, all of which may be fully reinvested while they remain in the annuity.

This allows an annuity investment to grow without being reduced by tax payments. But there are myriad questions clients will have regarding specific tax rules on types of annuities.

Are you advising your clients correctly when it comes to taxes related to their current or future annuity investments? In the slideshow are 11 important tax and financial planning questions and answers advisors should be aware of regarding such investments, according to ALM’s Tax Facts Online.

(Graphics: Chris Nicholls/ALM)


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