Would a nonqualified annuity be taxable to the original owner if its value increased?

Would a nonqualified annuity be taxable to the original owner if its value increased?

by John R. Steffee, CPA | Nov 10, 2017

If someone owns a nonqualified annuity where the original deposit was $100,000 10 years ago, and now the contract value is $200,000 and the owner and annuitant is going to be changed to the existing spouse, as a gift, will this create a taxable event to the original owner or is there an exception? Please keep in mind a change to both the annuitant and owner, not just an ownership change.

The federal government, as well as Pennsylvania, allow unlimited gifts between husband and wife. Therefore, the gift of the ownership interest in this annuity will not be a taxable event, either for individual income tax or for gift tax purposes.

The transfer of ownership should be from one custodian to another custodian. The current owner does not want to receive any cash in any way shape or form as a result of this transaction. The receipt of cash will be treated as a taxable event just the same as any cash distribution from an annuity.
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Answered by: John R. Steffee, CPA, is with Simon Lever LLP in Lancaster, Pa.
The responses are based on the limited information provided by the questioner and apply the laws and regulations at the time of posting. Other options could arise as rules and regulations may change over time, including but not limited to the passage of the Tax Cuts and Jobs Act of 2017. They are intended to provide general information, not specific accounting or tax advice; they are not intended or written to be used and cannot be used for the purpose of avoiding or evading taxes or penalties under the IRS code or regulations. Views expressed do not imply an opinion of the PICPA, its officers, directors, employees, or members.
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