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cfortunato
cfortunato, Attorney
Category: Bankruptcy Law
Satisfied Customers: 8023
Experience:  Bankruptcy professor.
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In September 2002 I opened a Variable Annuity Policy with a

Resolved Question:

In September 2002 I opened a Variable Annuity Policy with a company called Western Reserve Life. Since then I have made periodic deposits (no withdrawals at all) into the policy to the extent that it has a 6 figure value, and rising due to interest guranteed on the policy.

This policy is an integral part of my retirement planning, 6 or 7 years hence. I have no plans at present to use the funds until then.

My question is this : As a Florida resident and an S Corporation small business owner, in the event of a personal bankruptcy filing would the courts view this variable annuity policy as a retirement plan like my 401(k) and IRA and thus making it exempt?

Thank you
Submitted: 5 years ago.
Category: Bankruptcy Law
Expert:  cfortunato replied 5 years ago.

cfortunato :

Hi - my name is XXXXX XXXXX I'm a Bankruptcy attorney here to assist you.


 


 

cfortunato :
cfortunato :

Many private annuities are not exempt from the Bankruptcy estate - even though they are retirement accounts.


 

cfortunato :

Is this account tax-deferred? In other words, did you not pay income tax on the money that went into the account?

Customer:

Yes, the money deposited into the account has been taxed.

Customer: replied 5 years ago.
Hello?
Expert:  cfortunato replied 5 years ago.

Retirement funds are exempt only "to the extent that those funds are in a fund or account that is exempt from taxation under...the Internal Revenue Code". Bankruptcy Stat. 522(a)(3)(C). It is not enough that the funds in the account are going to be used for retirement.

Unfortunately, since the money that went into your retirement plan was not tax-exempt, that plan would also not be exempt from the Bankruptcy estate.

 

I think this is what you wanted to know. If not, please let me know.
Thank you.
Customer: replied 5 years ago.

The funds in the account ARE currently exempt from Income Taxes. When I begin to withdraw those funds as an annuity payout monthly only the interest earned is taxable because the deposits into the account have already been taxed.

 

Does this change your answer?

Expert:  cfortunato replied 5 years ago.
Is your annuity IRS Code 403, 408, 408(A), 414, 457, or 501(a) compliant?
Customer: replied 5 years ago.
The policy provider will only say that this is a Non Qualified plan. Regarding the specific codes you mention above they are telling me to consult a tax specialist.
Expert:  cfortunato replied 5 years ago.
If the plan is a non-IRS-qualified plan, it will not be exempt from the Bankruptcy estate if you file a Bankruptcy. The retirement account exemption applies specifically to IRS-qualified plans only.
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