Annuity Loans Can Be A Source Of Ready CashAnnuities can be the type that disperses the earnings as they are earned, or the type that accumulates the earnings. The annuity that accumulates earnings (deferred annuity) is by far the most popular as it enables the owner to defer taxes until the funds are withdrawn from the account. When the owner of the annuity is in need of funds for real estate, debt consolidation or college funds, it may not be to their advantage to withdraw the money from the annuity. The future value of the annuity will be impacted, there may be penalties for early withdrawal and the amount of withdrawal will be subject to taxes. All good sound financial reasons to keep the annuity intact. Some annuities will allow you to borrow tax free against the annuity in the form of annuity loans. Each company has their own policy concerning loans but most have set a limit of no more than $50,000.00. As an example, if your annuity is through TIAA-CREF, the amount of the loan is employer dependant. However, TIAA-CREF limits are set at a minimum of $1,000.00 and a maximum of: A. $50,000.00; or B. 45% of your combined TIAA and CREF Retirement or Group Retirement Annuity accumulations under the retirement plan of an employer that allows loans; or C. 90% of your TIAA-CREF Retirement or Group Retirement Annuity variable account accumulations available for loans under the retirement plan of an employer that allows loans. Non qualified policies will not be eligible for annuity loans. It will have a monetary value based upon the amount of the investment to date. This has been done for years and should present no problem. The problem can come if you apply for a loan on a qualified annuity. In order to avoid problems with using your qualified annuity for collateral check with your accountant first. IRS form 5329 states that if during the tax year you use all or any part of a Qualified Annuity as security for a loan the total value of the contract may be treated as being distributed as of the first day of the tax year. The portion of the annuity assigned as colleteral is taxed according to the rules pertaining to partial withdrawals and full surrenders and may be also be exposed to the 10% penalty tax if the annuitant is pre-59 1/2. |