I invested an inheritance into an annuity (without really understanding it). The cash value has increased, and I have the opportunity of cashing out. My broker (who is uncomfortably young) and my tax guy are saying different things about taxes due on the growth. The broker says I will owe cap gains taxes; my accountant (who is unfamiliar with the specific annuity) says that annuities are, pretty much by definition, subject to income taxes PLUS a 10% penalty for cashing out before age 59-1/2. The annuity is NOT in any protected vehicle like a 401k or IRA. Who do we fire?
I purchased the annuity with money I inherited. I paid taxes on the inheritance. After taxes, I had ,000 left. I purchased the annuity with these 90,000 after-tax dollars; as such, I believe it is a non-qualified annuity.

Rather than taking periodic payments, I surrendered the annuity several years later, just before the maturity date, paying a surrender fee to the insurance company. (I had held the annuity for so long, and it was so close to the maturity date, that the surrender fee was minimal; I chose to surrender it since tax rates were scheduled to increase on Jan 1, and the surrender fee was much less than the potential increased tax liability.) I received 3,000 for surrendering the annuity.

1) Do I owe income tax or cap gains on the ,000 profit? (My broker and the insurance company say cap gains; my tax guy says income tax.)
2) Do I owe the IRS an extra 10% on top of this since I surrendered it before age 59-1/2?
3) If I owe the IRS a 10% penalty, then WTF i

check in good faith was already cashed by the seller, the closing was scheduled 15th 0f dec but my husband’s annuity fund won’t be available till 01/11/2011 so we asked for extension and luckily the seller granted us the extension. after a short period of confidence. . . the mortgage co. told us to close the deal within this year or else we will be affected by the change of the terms and won’t be able to get the loan from them. the problem is. . . it’s the annuity fund that we are waiting for to pay for the closing cost. we can’t of course get a small loan anywhere since it wll affect the credit. . . and we might lost some of the money we already put up. any suggestion or opinion is highly appreciated. thanks and more power.
between d devil & d deep blue sea. . . sigh!
Add’l info: we don’t have a problem with the seller. . . we are both in good terms. . . it’s the annuity fund that caused the held up here. for so many weeks of application and waiting, they just keep telling us that we had meet and complied the requirements and they were just waiting for the approval. You really can’t rely on online or phone conversations If you want your money, the agency concerned will only say what they want you listen. . .Our mistake is we did’nt anticipate if here will be a delay to happen. and Yes, my hubby’s credit is in fair condition, critical to bad. .
we did’nt work this out in advance because. . . we are still in search for a home to buy and improving the credit score to qualify for a mortgage. there were no mortgage co. that denied us but this the worst scenario that happens and we admit the default was on our side due to negligence of taking care of things and not miss any day from work to cope up with the rental where we are now.

I cant quite figure out these last 5 HW problems can you please help?

1) Pamela projects that she can get 0,000 cash per year for 5 years on a real estate investment project. If Pamela wants to earn a rate of return of 10%, what is the maximum that she should pay for the investment? (rounded to the nearest dollar)

a. 0,461
b. 0,000
c. ,092
d. 9,079

2) Shotgun Company is considering a capital project that will return 5,000 each year for five years. At the company’s hurdle rate of 10%, the present value of the annuity is 9,000. If the return on investment in the first year is ,900, what is the return of investment that year?

a. 3,900
b. 5,000
c. ,100
d. None of the above

3) Raleigh Company has two investment opportunities. Both investments cost ,750 and will provide the same total future cash inflows. The cash receipt schedule for each investment is given below:

Investment I Investment II
Period 1 ,000 ,000
Period 2 1,000 2,000
Period 3 2,000 3,000
Period 4 4,000 2,000
Total ,000 ,000

The net present value of Investment II assuming a 10% minimum rate of return would be which of the following amounts? (round to nearest whole dollar)

a. (9)
b. ,791
c. ,182
d. ,432

4) Tawanna is considering starting a small business. She plans to purchase equipment costing 5,000. Rent on the building used by the business will be ,000 per year while other operating costs will total ,000 per year. A market research specialist estimates that Tawanna’s annual sales from the business will amount to ,000. Tawanna plans to operate the business for 6 years. Disregarding the effects of taxes, what will be the amount of annual net cash flow generated by the business?

a. ,000
b. ,000
c. ,000
d. None of the above

5) An investment that costs ,000 will produce annual cash flows of ,000 for a period of 4 years. Given a desired rate of return of 8%, the investment will generate a (round your answer to the nearest whole dollar)

a. negative net present value of ,121
b. positive net present value of ,121
c. positive net present value of ,121
d. negative net present value of ,121

Hello!

I’m in Ohio (Summit County) and have came into a large settlement, I am 23 years old and quite frankly have no experience in loans, lines of credit, I’ve pretty much paid cash for everything I’ve ever owned other than some minor retail credit cards and the occasional payment plan for jewelry, etc.

I am buying a house, car, and a few new household appliances and whatnot. We’re looking at a simple conservative house around the 170K area. This is the root of my whole question; Can you borrow more than the value of the home? I know this might seem like a simple question but with all the issues with sub-prime lending and other dumb republican-democratic economy screwiness..

I’m looking to borrow an amount at or around 30K~ over whatever the house will end up costing us final cost, done deal, out the door..

I’ve read that houses can easily be used as collateral for a secured loan, I just didn’t know how flexible companies were in regards to "writing over". I mean it’s like righting a check to a grocery store, getting it approved for over, except it’s like ,000 or ,000!! I’ll be able to pay whatever the monthly payment is, of course I am being fairly frugal but nothing too lavish, doesn’t take much to make me happy. I’d feel better living in a beautiful new house in the country and donating thousands to charities rather than doing the typical "I just got rich" thing and ruining their financial future and security with 1 or 2 moronic purchases. I am only borrowing 30K over the top, so I will spend less than =>170K on the house and need at least 30K extra.

If anyone has a clue on how these things work I would appreciate it very much because I’m sure I would get taken for a lot of cash if I just went out to a bank ignorantly and got a loan because their sign was nicer.. Oh too, should I "lie" to the bank about how much money I have? Anytime I’ve bought a car I just started out with the base cost of the vehicle, and say that’s all I have. If they take a 2K hit, it really costs them nothing with a return customer and referrals they actually owe that to the consumer if it were a perfect world…:(

I hope I didn’t confuse anyone with this, I am getting evicted from my apartment (good timing right????), was in a really terrible rut financially due to losing my job. I have the check and the monthly annuity check (partial lump sum then monthly payments for 20 years).

I am just wondering because I found out today, it’s a Saturday and I’d like to be as ready as an accountant so I can make this happen yesterday!

Thanks guys,

Rick