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Taxation of Annuities Rockwell

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Healthcare Provider Update: Healthcare Provider for Rockwell Medical Rockwell Medical, known for its innovative medical treatments, primarily operates within the healthcare sector focused on renal disease and has strategic partnerships with various healthcare networks and specialty pharmacies to provide its therapies. Specific information on a single, definitive healthcare provider affiliated with Rockwell Medical is not typically disclosed, as their products may be distributed across multiple platforms depending on regional healthcare systems. Healthcare Cost Increases for 2026 In 2026, healthcare costs for many consumers are projected to rise significantly due to a combination of factors, including the anticipated expiration of enhanced federal subsidies which could lead to premium increases of 75% or more for nearly all Affordable Care Act (ACA) marketplace enrollees. Leading insurers are requesting considerable rate hikes, with some states experiencing increases exceeding 60%. As medical costs continue to escalate driven by inflation, labor shortages, and heightened demand for services, individuals and families may face unprecedented out-of-pocket expenses, prompting urgent action to manage healthcare budgets effectively. Click here to learn more

It is important for Rockwell employees to understand the nature of annuities and make sound financial planning to maximize tax-deferred growth while avoiding the risks of early withdrawals and surrender charges, says Paul Bergeron, representing the Retirement Group, a division of Wealth Enhancement Group.

'Understanding the tax implications of annuities helps Rockwell employees plan for Retirement while mitigating tax impacts and maximizing tax deferral,' says Wesley Boudreaux, of the retirement Group, a division of Wealth Enhancement Group.

In this article, we will discuss:

1. How premiums are treated on annuities for Rockwell employees - including non-deductibility and tax deferral of earnings - is discussed here.

2. Taxation of annuity earnings and distributions including how earnings grow, tax on withdrawals and early withdrawal and complete surrender rules.

3. Including special considerations for gifting and estate planning with annuities - tax consequences, types of transfers & impact on estate and gift taxes.

Income Taxation of Annuities

Income Taxation of Premiums

Your premiums into an annuity as a Rockwell employee - in one lump sum payment or monthly installments over many years - are usually nondeductible. And you will get no current income tax savings by investing in an annuity, either. But earnings on the annuity's funds will be tax deferred.

Caution:

Most annuity contracts contain limitations, exclusions, fees and charges including mortality and expense charges, account fees, investment management fees, administrative fees, charges for optional benefits, holding periods, termination provisions and terms for keeping the annuity in force. Most annuities charge surrender charges when the contract owner surrenders the annuity. Withdrawals of annuity earnings are taxed as ordinary income and may be subject to surrender charges plus a 10% federal income tax penalty if made before age 59 1/2.

Withdrawals decrease the benefits and values of annuity contracts. Such guarantees depend on the ability of the claims-paying company and on its financial strength. The FDIC or any other government agency does not guarantee annuities; [They are not deposits of, nor guaranteed or endorsed by, any bank or savings association.] For variable annuities the investment return and principal value of an investment option are not guaranteed. Variable annuity subaccounts change with market conditions and the principal may be worth more or less than the original amount invested when the annuity is surrendered.

Taxation of Earnings on Funds Within the Annuity (Cash Value Buildup)

In general, earnings from an annuity grow tax-deferred and the annuity owner pays no income tax on the earnings until they are withdrawn. Remember this as a Rockwell employee when planning your finances and considering withdrawals.

Caution:

Early withdrawals from an annuity before age 59 1/2 are taxed and may carry a federal 10 percent penalty.

Dividends from an Annuity Are Taxed as Income.

Distributions classifying them as compensation (partial surrenders, full surrenders and annuitization payments) are taxed as ordinary income. For Rockwell employees, the income tax treatment of distributions from an annuity contract depends on the distribution method selected and the date the annuity contract was established.

Paragraph 179 of the Income Tax Act, 1961:

Income Taxation of Partial Surrenders.

For any Rockwell employee who signed an annuity contract after August 13, 1982, interest-first rule applies to any partial surrender of the annuity. The interest-first rule holds that the partial surrender must come from the earnings component of the annuity first and not from the principal (until all earnings are withdrawn). The partially surrendered gain therefore constitutes part of the annuitant's gross income and is taxable.

If you bought an annuity contract before August 14, 1982, a partial surrender is generally subject to taxation under the cost-recovery rule. The cost-recovery rule applies to partial surrender first from the investment in the contract (until the entire investment in the contract is depleted). Any remaining part of the partial surrender is treated as contract earnings and taxed as ordinary income.

Taxation of Complete Surrenders.

If you're a Rockwell employee and annuity holder, know that untaxed earnings (the difference between the cash surrender value of the contract and the net investment in the contract) are subject to income tax if an annuity is fully surrendered.

Example(s):

Mister Smith has a USD 80,000 cash surrender value annuity and has paid premiums of USD 30,000 into the annuity. Once he completely surrenders the annuity, Mr. Smith will pay income tax on USD 50,000 (USD 80,000 - USD 30,000).

Loss on an Annuity Contract.

Annuity recipients who sell or surrender a variable annuity for less than its cost basis may lose money. This may happen if the market falls and the investment loses value.

Example(s):

Mister Smith has a USD 80,000 cash surrender value annuity and has paid premiums of USD 100,000 into the annuity. In exchange for USD 20,000 Mr. Smith gives up the annuity completely.

Tip:

A loss on a variable annuity is a normal loss under Rev. Rul. It is not an investment loss reported on Schedule D 61-201, 1961-2 C.B. 46. Another option is to write off the loss as a miscellaneous itemized deduction subject to the 2 percent floor on Schedule a. Consult a tax expert. Any surrender charges incurred are not part of the loss.

Tip:

In the case of a life only annuity with a starting annuitization date after July 1, 1986, a deduction is allowed for the unrecovered investment in the contract if the sum of all payments received is less than or equal to the investment in the contract.

Caution:

Variable annuities are long-term investments suitable for retirement funding but subject to market fluctuations and investment risk including loss of principal. Variable annuities are sold with a prospectus that outlines the variable annuity, including fees and charges imposed by the product. Such charges include but are not limited to mortality and expense risk charges, administrative fees and charges for optional benefits and riders. The prospectus may be obtained from the insurance company issuing the variable annuity or from your financial professional. Read it carefully before you invest. Annuity Taxation - a Guide to the Rules.

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Annuity payments are taxed differently for a Rockwell employee and potential annuity holder. In the tax code, two parts of annuity payments are tax deductible: A nontaxable portion of the return of premiums paid into the annuity and a taxable portion of earnings on the annuity. So only a portion - the annuity premiums - is excluded from the annuity owner's aggregate income. The excludable part of every annuity payment equals the annual number of payments multiplied by an exclusion ratio. The fixed annuity exclusion ratio is the sum of the contract investment of the annuity holder at the annuitization start date divided by expected return.

Example(s):

A fixed annuity contract for Mr. Smith pays him USD 200 a month for 20 years. He expects USD 200 / month x 20 years x 12 months / year = USD 48,000. Mr Smith has USD 24,000 invested in the contract and his exclusion ratio is USD 24,000/USD 48,000 = 50 percent. That would leave 50 percent of each USD 200 payment (USD 100) out of Mr. Smith's gross income. The rest of his payment of USD 100 is ordinary income.

Caution:

For variable annuities the rules are different. Variable annuity payments change value so the expected return at the beginning of the annuity can not be estimated. The excludable portion is normally equal to the investment in the contract multiplied by the number of years the annuity is expected to be paid. That calculation varies with annuitization.

Tip:

All deferred annuity contracts that the same insurance company issues to the same policyholder in any calendar year are one annuity contract.

Section 1035 Exchanges & Partial Exchanges.

As a Rockwell employee and annuity holder, you generally can swap an annuity for another without recognizing an immediate gain or loss under IRC Section 1035. The exchange can be a full swap of one policy for another or a partial swap whereby a portion of funds are directly transferred from an existing annuity contract to a new annuity contract. To qualify for such favorable tax treatment, however, the exchange must satisfy Section 1035.

Caution:

The rules for 1035 exchanges are complicated - and you could pay surrender charges on your 'old' annuity. You may also be charged new sales and surrender fees for the new policy.

How to Gift an Annuity - Income Taxes.

Annuity owners can gift an annuity in two ways:

Holder of annuity can surrender the annuity and transfer the money to the individual. But the annuity owner will pay income tax on the untaxed proceeds (the contract's cash surrender value minus the net investment in the contract). By surrendering the annuity and donating the cash the recipient also is no longer able to earn tax-deferred interest on the annuity. With an income tax and a limited ability to accumulate tax-deferred interest, Rockwell employees considering gifting an annuity might want to consider other options besides surrender.

The annuity proprietor can pass the annuity contract ownership to the individual. That annuity contract will continue to exist after the transfer, and the person receiving the annuity is the new owner. Yet this method of gifting an annuity usually has immediate tax consequences for the transferor. If the transfer involves an annuity contract issued after April 22, 1987, the transferor is considered to have received income equal to the difference between the contract's cash surrender value at the time of the gift and his or her net investment in the contract. For a Rockwell employee, this information might be useful in weighing annuity transfer options.

Example(s):

Mr. Smith wants to gift an annuity to his daughter Alexandra. Mr Smith bought the annuity contract after April 22, 1987. He has put USD 12,000 in premiums into the annuity, which has a cash surrender value of USD 20,000. Mr. Smith will recognize USD 8,000 taxable income when he gives the annuity to his daughter. The tax consequences for a transfer of an annuity issued before April 23, 1987 are more complex. Any annuity gains that the transferor realizes are taxed in the year the contract was surrendered by the recipient, not the year the gift was made.

Example(s):

Mr. Smith wants to gift an annuity to his daughter Alexandra. Mr Smith purchased the annuity contract before April 23, 1987. He has put USD 12,000 in premiums into the annuity, which has a cash surrender value of USD 20,000. At age 21 Mr. Smith gives the annuity to his daughter. So Alexandra does not surrender the annuity until age 25. Mr. Smith would not be taxed on gains from the annuity (USD 20,000 cash surrender value minus USD 12,000 premiums paid into the annuity) until the year the annuity was surrendered-four years after he gave the annuity to his daughter.

Natural Person Requirement

Until 1986, the earnings on an annuity were tax-deferred regardless of the annuity owner's status as a natural person. In 1986 Congress passed legislation preventing certain corporations and others from taking advantage of the tax-deferred status that annuities enjoy. After February 28, 1986, if the contribution is to an annuity owned by a corporation or other legal entity other than a natural person, the annual earnings on the annuity funds are generally included in the owner's taxable income. But even so, the non-natural person rule is not applicable when a trust, corporation or other non-natural person holds an annuity contract on behalf of a natural person. Essentially, the contract is an annuity with tax-deferred earnings. Also, Rockwell employees should know the non-natural person rule does not apply to the following types of annuities:

Acquired by the estate of a deceased individual.

Located in a qualified retirement plan, tax-sheltered annuity (TSA) or individual retirement account (IRA).

Purchased from a Rockwell-sponsored plan at the termination of a qualified retirement plan or TSA program and held by Rockwell until all amounts under the contract are distributed to the employee (or his/her beneficiary) for whom the contract was purchased.

An immediate annuity (an annuity purchased with a single premium that begins to pay within a year of purchase and which pays substantially equal periodic payments at least annually during the annuity period):

Qualified funding asset (e.g., a contract for an annuity with a licensed insurance company that is purchased to fund payments for personal physical injury or illness-related damages):

Estate Taxation of Annuities

Annuity contract values are usually included in the aggregate estate of a deceased policyholder. When the annuity owner dies before payments start, the annuity value is equal to the accumulated cash value. If payments began at the time of the annuity holder's death, this is the value of any remaining payments, if any. When annuity is owned jointly by unmarried individuals, the value included in gross estate is proportionate to each owner's contribution. For any Rockwell employee with an annuity, the following information may be helpful in planning for your future and ensuring that your assets are passed to the intended beneficiaries when you die.

Example(s):

Bill paid 60 per cent of the premiums on an annuity and his cousin Ed 40 percent. Since Bill paid 60 percent of the premiums, only 60 percent of the annuity value will be included in Bill's gross estate when he dies. When Ed dies, 40 percent of that value will go into his gross estate.

If the proprietors are married, each spouse gets half of the property value as a gross estate.

Example(s):

And Bill paid 60 percent of the premium on a new annuity; his wife Cindy paid the other 40 percent. Bill will receive only 50 percent of the contract value in his gross estate when he dies despite paying 60 percent of the premiums. When Cindy dies, 50 percent of the value will be included in her gross estate even though she contributed only 40 percent of the premiums.

Example(s):

But if the decedent gifts an annuity contract to another person before death and the decedent has no interest in either the contract or the annuitization payments, the annuity contract value generally is not included in the decedent's estate.

Annuities Gifted After the Annuitization Starting Date are subject to Gift Taxation.

As a Rockwell employee, you may be required to pay federal gift tax on an annuity you gift. When someone buys an annuity and later gifts it to someone else, the gift is worth the cost of the annuity contract. If the buyer of an annuity contract keeps the contract for some time before gifting it and additional payments are needed to maintain the contract, it is a little more complicated to determine the gift value. The gift equals the interpolated terminal reserve value plus the proportional share of the most recent premium payment for the period beyond the date of death.

Tip:

The annual gift tax exclusion could apply.

In terms of the taxation of annuities, our 60-something audience of Rockwell workers and retirees needs to know that annuity contracts owned by non-natural persons such as corporations are subject to different tax rules. If a contribution is made after February 28, 1986 to an annuity owned by a non-natural person, the annual earnings on the annuity's funds are generally included in the owner's taxable income, under Internal Revenue Code Section 72 (u) (1). That means if you have an annuity held in a corporation or other non-natural person entity, know the tax implications. Be educated and consult a tax professional for specific advice tailored to your situation. (Source: IRS, Publication 575 - Pension and Annuity Income (December 30, 2021).

It is like navigating a financial maze to understand how annuities are taxed. As explorers with maps and terrain knowledge might conquer a maze of terrain, our 60-something audience of Rockwell workers and retirees needs information on annuity taxation to make sound decisions. Think of annuities like financial structures with many different paths to explore. From the non-deductible premiums that resemble financial checkpoints without immediate tax benefits to the tax-deferred growth on annuity earnings that resemble treasures yet to be found - every turn and turn has potential tax consequences. Be wary of penalties and rules regarding withdrawals, partial or full surrenders, distributions and even gifting annuities. Just as seasoned explorers seek out expert help in unfamiliar terrain, so should our intended audience seek out tax professionals to help them decipher the annuity tax maze and direct their money to the best possible destinations.

Sources:

1. Internal Revenue Service.  'Publication 575 (2023), Pension and Annuity Income.' IRS, 2023. Web. Accessed February 2023.  Publication 575 .

2. Internal Revenue Service.  'Topic No. 410, Pensions and Annuities.' IRS, n.d. Web. Accessed February 2023.  Topic No. 410 .

3. Internal Revenue Service.  'Publication 939 (12/2022), General Rule for Pensions and Annuities.' IRS, December 2022. Web. Accessed February 2023.  Publication 939 .

4. Internal Revenue Service.  'Annuities - A Brief Description.' IRS, n.d. Web. Accessed February 2023.  Annuities - A Brief Description .

5. Internal Revenue Service.  'Form 1040 and Instructions.' IRS, 2023. Web. Accessed February 2023.  Form 1040 Instructions .

What retirement planning resources are available to employees of Rockwell Automation that can assist them in understanding their benefits upon retirement, specifically regarding the Pension Plan and Retirement Savings Plan? Discuss how Rockwell Automation provides these resources and the potential impact on an employee's financial security in retirement.

Retirement Planning Resources: Rockwell Automation provides several retirement planning resources to aid employees in understanding their Pension Plan and Retirement Savings Plan benefits. The company offers access to a pension calculator and detailed plan descriptions through their benefits portal. Additionally, employees can seek personalized advice from Edelman Financial Engines, which can guide on Social Security, pensions, and 401(k) management. These tools collectively help in maximizing retirement income, ensuring financial security.

In what ways does Rockwell Automation support employees who are transitioning to retirement to find appropriate health coverage, particularly for those who may be eligible for Medicare? Explore the relationship between Rockwell Automation's healthcare offerings and external resources like Via Benefits and how they assist retirees in navigating their healthcare options.

Health Coverage for Retiring Employees: Rockwell Automation supports transitioning employees by offering pre-65 retiree medical coverage and facilitating access to Via Benefits for those eligible for Medicare. This linkage ensures continuous healthcare coverage and aids retirees in navigating their options effectively. Via Benefits provides a platform to compare and select Medicare supplement plans, ensuring that retirees find coverage that best fits their medical and financial needs.

How does the retirement process affect the life insurance benefits that employees of Rockwell Automation currently hold? Investigate the various options available to retiring employees regarding their life insurance policies and the importance of planning for these changes to ensure adequate coverage post-retirement.

Life Insurance Benefits: Upon retirement, life insurance coverage through Rockwell Automation ends, but employees have options to convert or port their policies. This transition plan allows retirees to maintain necessary coverage and adapt their life insurance plans to meet their changing financial and familial obligations post-retirement, thus ensuring continued protection.

What considerations should Rockwell Automation employees take into account when planning the timing of their pension benefit elections, and how can this timing affect their retirement income? Discuss the implications of pension benefit timing on financial planning and the suggested practices by Rockwell Automation for making these decisions.

Pension Benefit Election Timing: The timing of pension benefit elections can significantly impact retirement income. Rockwell Automation provides resources to model different retirement scenarios using their pension calculator. Employees are advised to consider the timing of benefit elections carefully, as early or delayed starts impact the financial outcome, thereby affecting overall financial stability in retirement.

How can employees of Rockwell Automation estimate their Social Security benefits before retirement, and what tools or resources does Rockwell Automation provide to aid in this process? Delve into the importance of understanding Social Security benefits as part of an overall retirement strategy and how Rockwell Automation facilitates this understanding.

Estimating Social Security Benefits: Employees are encouraged to use resources provided by Rockwell Automation to estimate their Social Security benefits. The company offers tools and external advisory services, including consultations with Edelman Financial Engines through the company’s portal, which help in understanding how Social Security benefits integrate with other retirement income sources for a comprehensive retirement strategy.

What are the health care options available to Rockwell Automation employees who retire before reaching the age of 65, and how do these options differ from those available to employees who retire after age 65? Discuss the eligibility requirements and implications of choosing, or deferring, retiree medical coverage under Rockwell Automation's plans.

Health Care Options for Employees Retiring Before Age 65: Rockwell Automation offers distinct health care plans for employees retiring before age 65, with eligibility dependent on age and years of service. These plans provide substantial support by covering different medical needs until the retiree is eligible for Medicare, illustrating the company’s commitment to ensuring health coverage continuity for its workforce.

In what ways can Rockwell Automation employees effectively prepare for potential cash flow gaps when transitioning into retirement? Evaluate the financial planning strategies recommended by Rockwell Automation to minimize the stress associated with income disruption during this critical period.

Preparing for Cash Flow Gaps: Rockwell Automation addresses potential cash flow gaps during retirement transition through detailed planning resources. The company highlights the importance of budgeting and provides tools to estimate the timing and amounts of retirement benefits. This proactive approach helps employees manage their finances effectively during the transitional phase of retirement.

What resources does Rockwell Automation offer to help employees make informed decisions regarding their retirement income sources, including pensions, savings plans, and Social Security? Examine the tools and guidance supplied by the company and how these can impact the employee's financial readiness for retirement.

Informed Decisions on Retirement Income Sources: Rockwell Automation offers extensive resources, including workshops and personalized counseling through partners like Edelman Financial Engines, to help employees make informed decisions about their retirement income sources. This support is crucial in helping employees optimize their income streams from pensions, savings plans, and Social Security.

How do Rockwell Automation's retirement benefits differ based on an employee's years of service, and what implications do these differences have for planning a secure retirement? Analyze the various tiers of benefits and options available to long-term versus newer employees and the importance of understanding these differences.

Impact of Service Years on Retirement Benefits: The company’s retirement benefits vary with the length of service, affecting the retirement planning of both long-term and newer employees. This tiered benefit structure underscores the importance of understanding how service length impacts pension calculations and eligibility for other retirement benefits, guiding employees in their long-term financial planning.

How can employees contact Rockwell Automation to seek further information about the retirement benefits discussed in the retirement document? Specify the available channels for communication and the types of inquiries that can be addressed through these means, underscoring the company's commitment to supporting employees during the retirement process.

Seeking Further Information: Employees can contact the Rockwell Automation Service Center for further information about retirement benefits. The availability of detailed plan descriptions and direct access to retirement specialists via phone ensures that employees receive support tailored to their specific retirement planning needs, reinforcing the company's commitment to facilitating a smooth transition to retirement.

With the current political climate we are in it is important to keep up with current news and remain knowledgeable about your benefits.
Rockwell Automation offers a defined benefit pension plan for employees hired before July 1, 2010. This plan provides retirement income based on years of service and final average pay. For employees hired after this date, the company offers a defined contribution plan, including a 401(k) with company matching contributions. Rockwell Automation uses a pension calculator to help employees estimate their benefits based on various retirement scenarios. Additionally, the company has taken steps to manage its pension obligations, such as transferring some liabilities to insurance companies.
Restructuring and Layoffs: Rockwell Automation announced plans to lay off 3% of its global workforce, amounting to approximately 900 employees, due to a decline in sales. The layoffs are part of broader cost-saving measures aimed at saving $100 million in the second half of 2024 and $120 million in 2025. These actions are intended to align costs with current market conditions and prepare for future growth (Sources: WPR, Urban Milwaukee).
Rockwell Automation includes RSUs in its compensation packages, vesting over time and providing shares upon vesting. Stock options are also provided, enabling employees to buy shares at a predetermined price.
Rockwell Automation has made significant improvements to its employee healthcare benefits in response to the evolving economic, investment, tax, and political environment. In 2022, the company emphasized comprehensive health and wellness programs, which included a range of medical, dental, and vision plans, as well as mental health support services through Employee Assistance Programs (EAP). These benefits are designed to provide employees with the resources they need to maintain their physical and mental well-being. Additionally, Rockwell Automation's commitment to creating a safe and supportive work environment is evident through its structured environmental, health, and safety (EHS) initiatives, which aim to mitigate workplace risks and promote a culture of safety. In 2023, Rockwell Automation continued to enhance its healthcare offerings by expanding access to telemedicine services and implementing wellness programs focused on preventive care. The company also introduced financial wellness programs to help employees manage their finances and plan for retirement effectively. These initiatives are part of Rockwell Automation's broader strategy to attract and retain top talent by providing comprehensive healthcare benefits that address the diverse needs of its workforce. By investing in these benefits, Rockwell Automation aims to ensure long-term business success and resilience in a dynamic economic landscape.
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For more information you can reach the plan administrator for Rockwell at 1201 s 2nd st Milwaukee, WI 53204; or by calling them at 1-414-382-2000.

https://www.rockwellautomation.com/documents/pension-plan-2022.pdf - Page 5 https://www.rockwellautomation.com/documents/pension-plan-2023.pdf - Page 12 https://www.rockwellautomation.com/documents/pension-plan-2024.pdf - Page 15 https://www.rockwellautomation.com/documents/401k-plan-2022.pdf - Page 8 https://www.rockwellautomation.com/documents/401k-plan-2023.pdf - Page 22 https://www.rockwellautomation.com/documents/401k-plan-2024.pdf - Page 28 https://www.rockwellautomation.com/documents/rsu-plan-2022.pdf - Page 20 https://www.rockwellautomation.com/documents/rsu-plan-2023.pdf - Page 14 https://www.rockwellautomation.com/documents/rsu-plan-2024.pdf - Page 17 https://www.rockwellautomation.com/documents/healthcare-plan-2022.pdf - Page 23

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