Two years ago, my uncle was sold a fixed variable annuity. It paid some teaser interest rate (the bait that Uncle took) but now is paying a paltry 3.45%. I cannot move the investment to an equity sub-account or anything like that. It's stuck at 3.45%. Buying the product was a mistake but not of major proportions, but I was not consulted at the time. Anyway, Uncle recently gifted the annuity to me. Upon transfer of ownership, the insurance company who wrote it told me that they would 1099 my uncle (next January) for the earnings to date. Not very much and Uncle is in a low tax bracket so this is not a problem. Uncle is 88. There is a lockup period on the annuity where a big penalty (from the insurance company, in addition to any tax penalties) hits if you withdraw. Some of the money recently became unlocked, so I withdrew it. The rest comes unlocked in a year. I am 47 years old. A few questions:
- I assume my basis will be what it was on the day of the gift, since Uncle will be paying taxes on all earnings thru that date. (?) 2. What is the penalty for me withdrawing all or part of the annuity before my own age 59 1/2? And what form do I report all of this on? And if one is disabled, is there an exception to the IRS penalty? And if so, what for do I report THAT on? It's just a bad investment that I want to close out as quickly and as cheaply as possible. I think I need to wait for the "lockup period" to end at the very least. But even beyond that, what are the implications of all of this?