30 Aug Should I take my annuity monthly or all at once?

Q. My late husband and I began an annuity about 30 years ago. It was tax-deferred and we never touched it. I will be 95 in 2024, and in that year I will have to start withdrawing it, monthly or all at once. What’s my best option so I’m not hit hard by taxes.
— Planning

A. That’s a great question.

A lot will depend on what other income you may have.

When people purchase annuities, it is to provide a steady flow of capital at a given age with the intent of having enough to cover their lifetimes, said Michael Karu, a certified public accountant with Levine, Jacobs & Co. in Livingston.

He said a tax-deferred annuity allows for the monies to grow without paying tax during the growth period, but paying the tax upon withdrawal.

If the entirety is not withdrawn, the balance should pass to your beneficiaries, who would have taxable income upon withdrawal, he said.

“Whether you take the minimum required distribution or any greater amount, the bulk of it will be taxable,” he said. “The annuity company should be able to provide calculations as to what percentage of the distribution will be taxable.”

But your decision — whether to take it monthly or as a lump sum — should not be based solely on the current income tax, although that certainly is one factor to consider, Karu said.

You need to know your tax bracket.

“If you already are in the highest tax bracket, then you should consider taking monthly installments so the tax consequences can be smoothed out over a number of years,” he said. “If you are in a lower tax bracket, you need to find out your tax bracket from your tax preparer. Then ask your tax preparer to calculate the tax consequences based on the monthly payout or a full lump sum payout.”

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This story was originally published on Aug. 30, 2023.

NJMoneyHelp.com presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.