Were your clients attracted to an annuity because of the ability to convert its value into a guaranteed stream of income – through annuitization or a lifetime income rider? The options are attractive, so it’s likely you have a few clients who fit that bill.
Statistics show, however, that only a small percentage of clients take advantage of those features – less than 5 percent of annuities are ever converted into an income stream. This means that the vast majority of annuities will eventually pass to the owner’s beneficiary upon their death.
Knowing those facts, you should talk to your clients about death benefit riders that are now available on select indexed annuities. Choosing a death benefit rider (available with a cost assessed at the end of each contract year and with NO medical underwriting) could allow your client’s beneficiary to receive an enhanced rollup value as a death benefit, all the while providing payout options and the opportunity to spread out their tax liability.
The Bottom Line: Instead of discussing interest rates and caps, talk to your clients about how death benefit riders on indexed annuities can create a legacy for their loved ones. Contact your Ash Brokerage annuity RVP or internal wholesaler for help starting the conversation.
Sounds like a line from Forrest Gump, doesn’t it? That may be the case, but the phrase also serves as an apt description for one of the major benefits of fixed annuities: simplicity. I’ve never a client complain because their portfolio or financial plan was “not complex enough.” Have you?
Couple simplicity with tax deferral, liquidity, low to no fees, and guaranteed rates, principal and income, and you have a very desirable product for your conservative clients and those looking to build a solid foundation under a more aggressive portfolio.
Oh, and how about two more benefits that may be the most important of all, especially in today’s economic environment? Correction protection and increasing future income.
A market correction is imminent – perhaps not this month or this year, but potentially next year or shortly after. Existing or soon-to-be-realized market gains are increasingly in jeopardy if they’re not locked in soon. A fixed indexed annuity can protect those gains and give your clients the chance to participate in near term gains, yet to be, before the correction.
Concerning income: If generating income now is important, will is be any less so in the future? No, it will be more critical in the future. Increasing income riders on fixed indexed annuities can guarantee future income increases for minimal cost compared to other alternatives.
The Bottom Line: Simplicity has value and is only one of the many benefits that fixed annuities provide. With a market correction on the horizon, staying in place and not going backwards is progress.
In a traditional investment, the goal is to buy low and sell high. However, most investors end up buying high and selling low. With the stock market at an all-time high, you should have a conversation with your clients about a fixed indexed annuity.
When talking about a fixed indexed annuity, please remember:
The Bottom Line: Ash Brokerage has a diverse lineup of fixed indexed annuities for clients looking for ways to get better yields without risk to principal. Let us help you provide solutions tailored to meet your clients’ needs.
For those of you who’ve been in the business quite some time, the date Aug. 13, 1982, is hardwired into your memory. For those of you who haven’t, it was the day the taxation of nonqualified (NQ) deferred annuities changed from FIFO (first in, first out) to LIFO (last in, first out).
The planning point of a pre-'82 NQ annuity was that you could recover your basis first before any taxable event occurred. For post-'82 annuities, it’s interest out first, until you get to basis, then it’s return of basis.
Believe it or not, this strategy still exists with NQ monies, with a few caveats. In a world where income planning and taxation is paramount, this strategy may be huge for an income planning case.
Here is how this concept works. Say a client, age 55 with a spouse also age 55, has $100,000 of NQ money to invest. They plan on retiring at age 65, so they have 10 years until income is needed from this deposit. They would place this in a fixed, deferred annuity with an indexed minimum guaranteed withdrawal benefit. The annuity isn’t designed for accumulation, only income. Therefore, in the 10th year, should they decide to walk away, the value would still only be $100,000.
But therein is the positive of this concept. In year 11, the guaranteed income for life is $7,988 over two lives. This is about the equivalent of a 6 percent compounded rollup with a 4.5 percent payout rate. Here’s the home run: Since it’s a deferred annuity with a guaranteed minimum withdrawal benefit, the withdrawals are FIFO since there’s no additional cash value in the contract. Therefore, the first 10 years of income are return-of-premium and tax-free.
Once the principal is recovered, it’s all taxable. But think of the planning possibilities here! If you could have your first 5-10 years of retirement income-tax-free, think of the possibility of converting some of your qualified monies to Roth IRA, as well as the possibility of delaying Social Security to age 70 to maximize benefits.
Throw in the fact you can now move up to 25 percent of your IRA money to a Qualified Longevity Annuity Contract and avoid required minimum distributions to age 85, and now you have some pretty creative income planning scenarios to work with – not just putting monies into an annuity with an income rider and turning it on at 65!
The Bottom Line: A lot changed in 1982, and a lot has changed since then. Talk to your clients about strategies to maximize their income and minimize their taxes in retirement.
Be aware: An IRS clarification that took effect Jan. 1, 2015, now restricts IRA rollovers. Your clients can make only one rollover from any of their IRAs to another (or the same) IRA in a 12-month period, regardless of the type or number of IRAs they own. This one-per-year limit applies across all IRAs in the aggregate including traditional, Roth, SIMPLE and SEP IRAs.
Before Jan. 1, the one-per-year limit applied on an IRA-by-IRA basis. This change in the IRS’s interpretation of the one-per-year rule comes from the U.S. Tax Court’s decision in Bobrow v. Commissioner.
If your clients make more than one rollover in a 12-month period, the improper rollovers may be subject to the following tax consequences:
Your clients can still continue to do as many of the following transactions in a 12 month-period as they want:
The Bottom Line: Make sure you understand the new IRS rules before you make any client recommendations this year. Your Ash Brokerage annuity team is here to help.
© 2018 Ash Brokerage LLC.