Colorado Bankers (CB Life)...

[Allen Trent]

25% optional withdrawal for CBLife approved by court, still listed as end of summer 23.

If this is true that you will be able to get 25%, remember if it is non-qualified money you are pulling out taxable deferred interest before getting any tax free cost basis. For those in lower tax brackets this won't be a big issue, but for those with higher incomes higher tax brackets, they may want to consider doing a 1035 exchange to a different annuity carrier with their 25%. 1035 exchange laws don't permit you to take possession of the money & rollover within 60 days like qualified funds can, so the check would need to be direct to new carrier in a new annuity if you are trying to avoid current taxation on any taxable deferred interest.

If qualified funds, you can also do a direct transfer to an existing IRA or new IRA plan. If you do get the check from a qualified plan, you do have 60 days to redeposit into an IRA to avoid taxation as long as you have not done any other indirect rollovers in the last 12 months where the check was made out to you.

Check your tax return impacts before taking possession. Larger lump sums that are taxable can not only bump you into a higher tax bracket, but also can expose more of your Social Security to counting as taxable income & in some cases can cause your Medicare premiums to be higher in years your annual income exceeds the higher income limits as Medicare premiums are income based

 

[rats0001]

For the previous 10% partial withdrawals, and the interest only withdrawal, they have never allowed 1035 exchanges, only cash or ach payments.

While it true most if not all the amount from non-qualified contracts will be taxable, many policies are now earning the 1% minimum rate. The 25% less taxes can now be invested safely at over 5%. Finally, the full liquidation is probably at least 3 years away, imo, and even then I'm not sure immediate full repayment will be an option, rather some kind of discount might be applied the more quickly you want your money back.

I got the 25% information from the sort of monthly email from the rehabilitator.

From the letter

The Rehabilitator filed on April 28, 2023, a motion in the Rehabilitation Court to modify the Court-ordered Moratorium to allow the Rehabilitator to make a one-time partial distribution in the amount of 25%, less any applicable tax withholding, fees and surrender charges, to annuity holders of CBL. The Court held a hearing on the motion on June 19, 2023, and granted the motion at the hearing. The Rehabilitator estimates the CBL distribution letters will go out by the end of the summer of 2023. Eligible policyholders will receive letters notifying them of the distribution, how much they would receive, and any options they may have. Please do not contact customer service about the distribution until after you receive a letter. They will not be able to answer any questions until that time. The Rehabilitator will make a further motion seeking approval for a similar Bankers Life Insurance Company (BLIC) distribution soon.

 

[Allen Trent]

While it true most if not all the amount from non-qualified contracts will be taxable, many policies are now earning the 1% minimum rate. The 25% less taxes can now be invested safely at over 5%. Finally, the full liquidation is probably at least 3 years away, imo, and even then I'm not sure immediate full repayment will be an option, rather some kind of discount might be applied the more quickly you want your money back.

It also depends on whether the consumer gave CBL new money at time of purchase or that consumer 1035 exchanged money from old annuities. It is quite possible that someone that gave CBL $300k to open a NQ annuity did so with a NQ annuity they had bought 10-20 years ago from another carrier & 1035 exchanged the $300k (Maybe $100k to $200k of which was deferred interest built up at the last carrier. I only warn as I have seen people rush & cash out annuities(not from a insurer failure) only to get a 1099 for $250k of taxable income 10-12 months later & there is zero they can do to undo the mistake. So, definitely walk before you run to find out your options, your taxable gain & how it will impact your individual tax return. At a minimum, if I had to take a large taxable gain out & the rehab situation wont allow 1035 exchange, I would try to have my CPA report it on my tax return as a 1035 exchange & later try to make a case with the IRS that it should be a 1035 exchange under the circumstances, etc (may not work)

 

[Dan T]

 

[Allen Trent]

View attachment 9982

Read the entire letter when you receive it in the upcoming months. I had heard unless you opt out of receiving the 25% partial check , you will incur surrender charges as stated in the policy contract unless you are out of the surrender charge period. It might be worth it, but might be best to figure out the surrender cost & especially taxes ( especially on traditional qualfied money like IRA or on NQ annuities that were rolled to CBL from a previous NQ annuity carrier)

 

[rats0001]

25% letter online now, link and phone number do not appear to be working yet. Talks about exchanging so maybe 1035 is possible, doesn't say that exactly.

https://www.ncdoi.gov/cbl-2023-partial-withdrawal-program-faqs/open

 

[Allen Trent]

25% letter online now, link and phone number do not appear to be working yet. Talks about exchanging so maybe 1035 is possible, doesn't say that exactly.

https://www.ncdoi.gov/cbl-2023-partial-withdrawal-program-faqs/open

That bullet point definitely says transfers & exchanges to another company are an option. Looks like you need to get proper paperwork to them by 10/21

Transfer/Rollover terminology will apply if the current CBL annuity is a qualified account like IRA, Roth, SEP, SIMPLE. Legally, it can be rolled to an existing IRA/Roth with a new custodian or someone you already have such an account with or a current employer 401k plan. If not rolled over/transferred, every penny of the qualified distribution will be reported as taxable (unless current plan is a Roth, over 59 1/2, established for 5 years)

Exchange applies as 1035 exchange if the CBL is a NQ annuity. To avoid tax on this distribution from CBL NQ annuity, the money could be 1035 exchanged to a new company NQ annuity or possibly an existing NQ annuity if it allows for flexible deposits (most products dont, but some do).

definitely seems worth figuring out if you are a in a higher tax bracket & if your gain currently is larger (gain on NQ has to be pulled out 1st before can touch any of the tax free cost basis). If in lower tax bracket or dont pay federal income taxes & the taxable gain is modest, might be best to take the distribution as taxable to utilize your standard deductions on tax return. Best to ask your tax preparer what you would owe in taxes if X amount is put on your tax return as taxable income from a NQ annuity.

 

[rats0001]

Looking for opinion of a annuity tax expert

Since the 25% withdrawal from CBLife would be a partial 1035 exchange on a non qualified contract, I read the rules for this type of transaction.

They seem to say no distributions are allowable from either the new or the original contract for 180 days after the exchange unless taken as annuity payments for at least 10 years.

Since I am taking monthly interest only withdrawals from CBLife, I read this as, unless I can get these interest withdrawals stopped, then any 1035 exchange will be invalidated and the 25% withdrawal taxed as a distribution.

If my understanding is incorrect, please let me know. I have not found a form on CBLife web site to stop the monthly interest only withdrawals, so it looks to me that I'm out of luck to defer the taxes on all the interest in my policy.

 

[Allen Trent]

Looking for opinion of a annuity tax expert

Since the 25% withdrawal from CBLife would be a partial 1035 exchange on a non qualified contract, I read the rules for this type of transaction.

They seem to say no distributions are allowable from either the new or the original contract for 180 days after the exchange unless taken as annuity payments for at least 10 years.

Since I am taking monthly interest only withdrawals from CBLife, I read this as, unless I can get these interest withdrawals stopped, then any 1035 exchange will be invalidated and the 25% withdrawal taxed as a distribution.

If my understanding is incorrect, please let me know. I have not found a form on CBLife web site to stop the monthly interest only withdrawals, so it looks to me that I'm out of luck to defer the taxes on all the interest in my policy.

First thing to figure out is what is your current total value & how much of that is cost basis & how much taxable deferred interest? If you put your own money in it when you 1st bought it(IE you didn't 1035 to CBL from a different carrier before) & you have been taking interest payments since purchase, you likely have no taxable gain built up & the aspect you mentioned would be a non issue.

Definitely ask your tax preparer about the question you have, especially considering the unique circumstances of this CBL situation as it isn't like a normal situation & you are just randomly wanting to take money to avoid taxes. You are receiving what is stated as part of the liquidation process, etc.

If it was my Money, I would definitely be moving it via 1035 & would plan for no issues, but if an IRS audit were to happen, I would pursue waiver from it. But again, this will only matter to the extent you have current taxable gains. Based on the low interest rate & the fact you have been receiving interest, you sound like you have little to no taxable deferred gains in the CBL contract

 

[rats0001]

My policy value is 114800 and my taxable interest is 15300,basis is 99500. The 25% distribution amount is 28700 of which 15300 will be taxable and 13400 return of capital(not taxable).
In the future since all interest @1% will be paid out monthly, the 86100 remaining balance will not grow, and sometime in the very distant future the entire 86100 will be non-taxable, as I see it.