Quick Read – Taking a nonqualified annuity as a lump sum forces all gains into one tax year as ordinary income, not at the lower capital-gains rate. – A $200,000 gain can trigger Medicare IRMAA surcharges roughly two years later, costing a single filer around $6,355 more per…
ar. – Annuitizing the contract, doing a Section 1035 exchange, or taking partial withdrawals can spread taxable income across multiple years before any lump sum is issued. – Thirty-One Years of Growth Arrive at Once A 72-year-old retiree opens a statement and sees that the deferred annuity he bought in 1995 is now worth $250,000. He paid $50,000 for it and let the money compound tax-deferred for 31 years
When the contract reaches its maturity date, he elects to take the lump sum. The check lands in his bank account, and for a moment it feels like the annuity has delivered exactly what he bought it to provide. Then the tax return catches up.
Two years later, Medicare does too. The $50,000 he originally contributed does not count as income because that money had already been taxed. The remaining $200,000 does.