Taxable event | Ed Slott and Company, LLC

Taxable event

A client of mine has a non-qualified defferred annuity with substantial growth. They wish to make a withdrawal and give it to their church. They do itemize. Would the withdrawal be a wash? Ordinary income withdrawal. Tax deductible contribution? If not is there another way?

It would probably come up somewhat short of being a wash for the following reasons: 1) With a large amount of growth, let's assume that the distribution will be 100% included in their AGI. 2) If they have enough itemized deductions to itemize prior to the contribution, the deductions due to medical expenses not keep pace with the increase in AGI due to the 7.5% floor which will increase by 7.5% of the distribution. Same with misc itemized deductions subject to 2% floor. 3) The added income could also possibly result in phase out of itemized deductions or AMT which would eliminate some of the deductions entirely. 4) It is also possible for them to lose certain tax credits due to the higher AGI if they already qualify for them. A direct qualified charitable contribution (QCD) only applies to IRA contributions over age 70.5, not to distributions from NQ annuities. A more accurate assessment could be made using their 2008 return, adding in the amount of additional income plus any other estimated changes from 2008.

Thank you for the update and comprehensive answers. Roy Williams

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