50+ Lifestyles

Split Annuities – Another Way to Defer Tax

By Richard J. Schillig, CLU, ChFC, LUTCF
Independent Insurance and Financial Advisor

‘Split Annuities’ are my favorite strategy for managing and protecting assets especially valued retirement assets. A ‘Split Annuity’ is really two or more annuities that are issued together – to coordinate income and replacement of income during the term. Usually one annuity is an immediate annuity and the second or additional annuity is a single deferred annuity or sometimes more than one deferred annuity.

Often I recommend using an index annuity on the deferred side of the split annuity to make sure assets are being replaced. There is no guarantee of the replacement since performance is not guaranteed, but what is guaranteed is there is no loss of annuity value if the stock and mutual fund markets are not gaining. Guarantees are backed by the financial strength and claims paying ability of the issuing insurance company.

Recently I was introduced to a newer index annuity that I think has some very unique features and potential for our split annuity strategies or just as a single deposit. This newer annuity is linked to the performance of the Barclays Bond Index on an annual point to point calculation method. Different from most index annuities, this bond index annuity has only a 5-year holding period. Boy – that’s really different from many index annuities! Most index annuities have much longer holding periods. Further this annuity allows for immediate access to 10% of your premium and 10% on each policy anniversary. Remember this annuity, as with most annuities, is intended for long-term investment purposes. However this annuity gives special consideration for emergencies for an unplanned need for cash. Past history of the Barclays Bond Index is readily available and will show a bond index increase every year for the last 20 years. Bond indexes are generally considered to be less volatile than many other
market indexes.

With income tax season coming to a close this month, remember annuities – both qualified and non-qualified – are income tax deferred. This bond index annuity could be an option for deferring income tax on potential gains. We pay taxes each year on interest or dividend gains in non-qualified account. This bond index annuity is an option for non-qualified money too. In addition to tax deferral, principal is guaranteed, growth linked to bond portfolio, option for immediate
liquidity, and modified liquidity during the 5-year holding period.

I encourage you to contact us for additional details.