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Both federal and state governments are looking enviously at the $3 trillion on the annuity books, and Stan the Annuity Man explains what investors need to know.

Will new tax law changes affect annuities? I'm here with Stan the Annuity Man and he's going to tell us.

Well, if you look at it realistically, there is $200 billion worth of annuities sold every year. There's $3 trillion that's been sold.

Now, if I'm a politician in Washington, I'm looking at that and I'm going, "Wait a minute...that's a big number." So they're looking at how to tax that without offending voters. Let's just be honest.

There are two states that have already implemented what's called a premium tax on income with your annuities. In other words, when you start taking income from it, they're going to put a little tax there. You can probably guess who started that. It started in California. Nevada's the second one that does that.

But now you're going to see states-because annuities are regulated at the state level-they're going to start looking at how to create income streams, income and revenue from annuities. Because with the baby boomer population, and 10,000 of them retiring every day, and they're going to contractually guarantee products that produce lifetime income streams...the states are going to say, "Wait a minute, that's a big number. How do we go and tax that?" But that's what's coming.

 Right. So it's not as much the federal government that annuities are taxed at?

No. Annuities and life insurance products are regulated at the state level, which is good in my opinion. The federal government has looked into it. They've got their eyes on it too. Understand, they're looking at not only...

Right. That's the danger, is that they can slap a whole other federal tax on top of what the states are doing if it's effective.

They could, and I tell people, who knows? All bets are off right now, because of just where we are with the fiscal cliff.

But states right now are looking at how to create revenue from that income stream. I think the federal government will look at it as well, just because it's such a big number. I don't know what the IRA number is, but I think its $7 trillion, and you have $3 trillion in addition to that on annuities. That's a big number, and they're trying to figure out how to create revenue from that.

Wow that's something to watch out for and keep abreast of.

And it's something you need to ask your agent about.

I was going to say...

In other words, if you say, "Hey, how's the income stream? Am I going to get taxed on that?" Not a lot of agents are really dialed into the taxability of income. They didn't even know in a lot of cases that income from annuities-and you need to know this as a consumer-it's taxed at ordinary income levels, and last in, first out. OK?

So you need to know that, and that needs to be part of the calculation when you're looking at income stream.

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