Cut the tax bite of gifting a variable annuity

By Anne C. Lee, Money Magazine

(Money Magazine) -- Q: A variable annuity that I've owned for many years has risen a great deal in value. Can I gift it to my kids? -- Anthony Cupo, Fayetteville, Ind.

A: You can, and you won't owe gift taxes as long as the annuity's current market value doesn't put you over your lifetime gift-tax exclusion (currently $5 million).

But another tax trap can make this strategy unappealing, says University of Southern California tax law professor Edward McCaffery.

When you make a gift of a variable annuity, you'll owe income taxes on your entire investment gain.

Better to spread out that tax bite by taking small annual withdrawals and making cash gifts, says MetLife senior consultant Barry Rabinovich.  To top of page

Overnight Avg Rate Latest Change Last Week
30 yr fixed4.35%4.35%
15 yr fixed3.77%3.70%
5/1 ARM4.18%4.17%
30 yr refi4.36%4.33%
15 yr refi3.74%3.67%
Rate data provided
View rates in your area
Find personalized rates:
Index Last Change % Change
Dow 25,089.76 291.98 1.18%
Nasdaq 7,244.27 26.04 0.36%
S&P 500 2,718.70 17.37 0.64%
Treasuries 2.92 -0.02 -0.68%
Data as of 2:33pm ET
Company Price Change % Change
Chesapeake Energy Co... 3.08 0.45 17.11%
General Electric Co 14.71 0.22 1.54%
Bank of America Corp... 31.92 0.05 0.16%
Advanced Micro Devic... 11.84 0.12 1.02%
Apple Inc 172.92 1.85 1.08%
Data as of 2:18pm ET