This annuity marketing advice might allow you to sell a tax deferred annuity and remove the interest instead of providing your prospect with an immediate annuity.
California has tax laws that require immediate annuity payouts to be taxed. Naturally California would be the one to figure out how to squeeze all the available tax dollars.
What is the tax? 2.35% of the paid benefit. The insurance company providing the income benefit will calculate the tax liability prior to providing the income to the client. The insurance company then pays the Sate directly.
Taxes, taxes and more taxes.
Makes you wonder how many state accountants it took to dream up this idea. They must have had help from the state assembly. (Oh by the way, they also will charge any income taxes that are due the state!)
Several other states tax immediate annuity income benefits.
South Dakota 1.25% on the first $500,000 and then a reduction
West Virginia 1%
A method for avoiding the tax would be to buy the annuity in a different state that doesn’t tax income benefits. (many companies allow this) Another option is to put your funds on deposit earning interest and remove the interest on a monthly income. Many insurance annuity contracts also allow for 10% of the value of the annuity to be removed without penalty and many will allow you to do this on a monthly income basis.
If you know your states tax rules you will be in a better position to advise your client.