Annuity loans

Annuities come in two forms, those that accumulate earnings, and those that disperse earnings. Deferred annuities are used to accumulate earnings in a tax deferred account allowing the investor to maximize their possible growth. These gains, however, are only tax deferred until they are withdrawn from the account. In the case that funds are needed, there are options available to investors that want to avoid the tax consequence of withdrawing from their deferred annuity. Some deferred annuities allow you to borrow tax free against the account in the form of an annuity loan. The amount you can borrow against your deferred annuity varies by company, but is usually no more than $50,000.



Can an annuity be used as collateral for a loan?
Non qualified annuities have been used to secure loans for years. The monetary value of a non qualified annuity or life insurance product can be used as temporary collateral for a loan. When considering using a qualified annuity as collateral, however, make sure to consult your tax accountant. According to IRS form 5329, 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 collateral is taxed according to the rules pertaining to partial withdrawals and full surrenders and may also be exposed to the 10% penalty tax if the annuitant is pre-59 ½.