Annuity Losses
I am talking with a new client who has been churned and burned with annuities. He originally opened a variable account and paid about $9000 to surrender and transfer into a fixed indexed annuity. The parcipation and caps have changed and he wants out of it. Now it has about an additional $16,000 in surrender penalties with 12 more years of surrender charges remaining. My question is this; can he request a liquidation of the fixed annuity and take a tax loss for the difference between his original deposit and his net cash value he receives for it upon liquidation?
Permalink Submitted by Alan Spross on Mon, 2008-02-04 23:40
Sounds sadly familiar.
Yes, he can cash in the annuity and deduct his loss as a misc itemized deduction subject to 2% of AGI. However, this will only benefit him if he can itemize and only to the extent that this particular deduction would add to what he would get with the standard deduction. If he did a 1035 exchange into the present annuity, his basis would be carried over from the original annuity. For partial transfers see p 18 of Pub 575.
If the situation warrants and these annuities were not appropriate for him due to age etc, he might have reason to make a complaint to the state insurance Dept or AG.
Permalink Submitted by Al Fry on Tue, 2008-02-05 19:32
I think someone forgot one of the cardinal rules of investing in annuities, they are LONG-RANGE investments. Sounds like he sells low and buys high! Although any annuity with a surrender charge of that length should probably not have been sold to this client (or anyone, for that matter), anyway.