Annuity Cost Basis and Previously Taxed Money

Before you think of withdrawing any money from your annuity you should look into what type of annuity cost basis is defined in your agreement with the life insurance company. This is because if you are not careful you could easily exceed your annuity cost basis and be taxed heavily from borrowing from the policy.

You should also examine the annuity cost basis before you buy an annuity of any kind as it could impact how much you might have to pay if you had to withdraw that money for an emergency one day. After all one never knows when a sudden illness or accident may require digging into your retirement money.

Technically the annuity cost basis is defined as the initial payment or premiums that you paid out when you purchased a nonqualified annuity. In this scenario you have already paid taxes on the money so you will not be taxed to the gills if you have to withdraw the money.

Sometimes the annuity cost basis is not taxed upon withdrawal. This is particularly true if it was not fully taxable n the first place. This means the cost basis would be minus the amount that is non-taxable by the government.

It is a good idea to look at the fine print of any life insurance offer to see what the conditions are when it comes to your cost basis. You need to look to see how much of your money will not be taxed upon withdrawal.

Another valuable thing to know is that most insurance companies insist that any withdrawal that you make from your annuity must come from what you have earned first. After that any amounts that exceed your cost basis will be taxed as ordinary income is and if you are under the age of 50 years, an additional ten percent in federal tax will also be slapped upon your withdrawal.)

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