Tax Basics

If you’re an investor, you need to keep accurate and well-organized tax records. Interest that you receive from investments is taxable income and must be reported on your tax return. Some examples of income you might receive include interest from bank accounts and certificates of deposit and dividends from stocks and/or mutual funds.

Life Insurance

Life insurance death benefits can be paid to you in either a lump sum or through a series of regular payments, sometimes known as living proceeds, or installments. A lump-sum death benefit from a life insurance policy is generally not included in your gross income. If you receive the death benefit in installments, the income tax-free portion is prorated. Consequently, each payment you receive will include a portion of income tax-free death benefit and interest, taxable as ordinary income.

Fixed Annuities

A fixed annuity is a contract between you and an insurance company for a guaranteed interest bearing policy that also includes guaranteed income options. The contributions made to annuities are not tax deductible, but the taxes on earnings are deferred until the money is withdrawn.

Under current federal tax laws, amounts withdrawn or distributed may be subject, in whole or in part, to federal income tax. In addition, a 10% federal income tax penalty may apply if distributions are made prior to an individual owner reaching age 59-1/2.

Transamerica Life Insurance Company and its representatives do not give tax or legal advice. Clients and other interested parties should be advised to consult with and rely solely upon their own independent advisors regarding their particular situation and the concepts presented here.

EBM 497 1207