Which money pays: the tax side

The same income is taxed differently depending on where the money comes from. Genius asks for it in the SPIA calculator and on the client's form.

1. 1.

   Open SPIA calculator. Under Premium & Income, set Source of Funds to where the client's money comes from.

   Practice Client: Traditional IRA, $150,000. The client's form asks it too, as Funding Source.

2. 2.

   Qualified money, such as a Traditional IRA or 401(k): payments are generally ordinary income. Qualified Roth payments can be tax-free.

   After Get quotes: Taxable Portion says Fully taxable on Traditional IRA money, and Monthly Taxable lists each quote.

3. 3.

   Pick Non-qualified: part of each payment is the client's own money back, untaxed. Tick the 1035 box for money from an older annuity.

   Exclusion ratio

   The share of each payment that is the client's money back. Tax-free until the cost is recovered.

   1035 exchange

   A swap from one annuity to another, insurer to insurer. It defers tax on the gain, but cash paid to the owner can make it taxable. State replacement rules still apply.

   A rider on that money is different: withdrawals are taxed gain first, until only the client's money is left.

4. 4.

   Before choosing the account, ask GrantAI: More, then Roth conversion strategy. Roth Conversion is its own Funding Source.

   Roth

   Retirement money taxed going in. It can come out tax-free under the rules.

   Full conversion on the Practice Client: about $29,385 in tax, 17.4% of that year's income of about $169,380. GrantAI says it doesn't make sense for her.

   (opens full size in a new tab)