To model a Non Qualified Annuity that will not be annuitized
Create an account: Investment/Savings/Checking with a current balance equal to the current cost basis of your annuity, ordinary income tax treatment, 0% rate of return, and excluded from your withdrawal strategies.
PLEASE NOTE: This entry represents the contributions you’ve made to your non-qualified annuity policy to date, which are non-taxable.
2. If you’re still making contributions to your annuity, and this wasn't purchased as a lump sum annuity, your cost basis will continue to increase with each contribution.
Create transfer(s) modeled TO the account you created in step 1, with the appropriate amount, start age, and stop age FROM an after-tax account.
IMPORTANT: Confirm the contribution(s) are funded and make changes as needed.
3. Create a pension: monthly or lump sum, with income equal to the amount of earnings you plan to withdraw, start and stop ages, 0% COLA, taxable set to yes, and survivor benefit set to 100%.
PLEASE NOTE: This entry represents the withdrawal of earnings only, before you’ve annuitized the policy. This is necessary because withdrawals from an annuity are on a last in first out (LIFO) basis, with earnings withdrawn from the account and taxed as ordinary income, before any return of contributions.
You may estimate your total earnings or back-in to a rough figure of your total earnings by completing the following:
apply a desired rate of return to the account created in step 1
view the balance of this account at your desired payment age(s) in the Savings Insights bar chart
add this amount to your existing earnings balance (i.e. - your current account balance less your current cost basis, as seen on a statement)
reapply the 0% rate of return to the account created in step 1
view the balance of this account at your desired payment age in the Savings Insights bar chart (this is to calculate your total contributions inclusive of any additional contributions (transfers) you’ve made
subtract the balance in step e. FROM the balance in step c.
Once all earnings have been depleted via LIFO withdrawals, additional withdrawals from the annuity are tax-free returns of contributions.
Create a transfer: FROM the account created in step 1 TO the desired after tax account.
For annuities you plan to annuitize or have annuitized:
Create a pension: monthly with a name that indicates this is the non-taxable portion of your annuity, the appropriate income (i.e. - the non-taxable portion of your annuity), start and stop ages, COLA specified in your policy, taxable set to no, and your survivor benefit amount.
Create a pension: monthly with a name that indicates this is the taxable portion of your annuity, the appropriate income (i.e. - the taxable portion of your annuity), start and stop ages, COLA specified in your policy, taxable set to yes, and your survivor benefit amount.
PLEASE NOTE: Two pensions are required because withdrawals from a non-qualified annuity are taxed according to an exclusion ratio, which is used to calculate the taxable portion of a non-qualified annuitized policy.