Learn more about taxable events that may be associated with your current investments

Did you know that taxable investments can generate taxable distributions—even if you don’t take money out of the account? Consider the examples below and consult your tax professional for more information regarding potential taxable events.

Taxable event1

Potential tax consequence

Receive a capital gains distribution
  • You may pay short-term capital gains tax at ordinary income tax rates of up to 37%, depending on your income, if the investment was owned for 12 months or less.
  • You may pay long-term capital gains tax of 0%, 15% or 20%, depending on your income, if the investment was owned for greater than 12 months.
Receive a dividend or interest payment
  • You may owe taxes even if dividends are reinvested.
  • Certain dividends qualify for special tax treatment and are taxed at a rate of 0%, 15% or 20%, depending on your income.
  • Dividends that do not qualify for special tax treatment are generally taxed at ordinary income tax rates.

Exchange shares within the same mutual fund family

(An exchange includes both a sale and a purchase)

  • You may pay short-term capital gains tax at ordinary income tax rates of up to 37%, depending on your income, if the investment was owned for 12 months or less.
  • You may pay long-term capital gains tax of 0%, 15% or 20%, depending on your income, if the investment was owned for greater than 12 months.
Sell shares and reinvest money with a different mutual fund family
  • Gains from sales are subject to short-term and/or long-term capital gains taxes.
Keep in mind, capital gains and dividends within a taxable investment may be taxed at a rate that is lower than tax rates on ordinary income.
holding a potted plant

Discover the tax-deferral power of annuities

With a tax-deferred investment—such as an annuity—all interest and/or earnings accumulate free of current taxes and are taxed as ordinary income when withdrawn.2 In contrast to other traditional investments, such as stocks, bonds, CDs and mutual funds (unless held within a retirement plan or account), with an annuity there are:

  • No capital gains surprises at tax time
  • No annual 1099 forms to collect (unless a withdrawal is taken)
  • Plus you have the flexibility to transfer between investment portfolios and money managers within a variable annuity—or rebalance the investment—without triggering any current tax consequences

 

Take action for your financial future

As you prepare for your financial future, it may make sense to periodically review your retirement savings and investment strategies from a tax perspective.

  • Identify tax-smart strategies with your financial and tax professionals. They can be good resources for evaluating your tax liabilities and potentially identifying ways of reducing your tax burden in the future.
  • Review your completed tax forms with your financial and tax professionals—look for ways to reduce or defer taxes.
  • Consider how tax-deferred savings or investment strategies, such as annuities, may help you reduce current taxes and avoid tax-time surprises.

 

Action is everything. Talk to your financial and tax professionals about tax-smart strategies for retirement today.


1 Assuming the investment is not held within a tax-deferred retirement account or an annuity.

2 Early withdrawals may be subject to withdrawal charges. Partial withdrawals may reduce benefits available under the contract, as well as the amount available upon a full surrender. Withdrawals of taxable amounts are subject to ordinary income tax and, if taken prior to age 59½, an additional 10% federal tax may apply.