Annuities are purchased to provide security for future income needs, mainly for retirement. Riders are often added to the policy to provide a guaranteed lifetime income stream.
But what happens when you enter retirement and determine this income may no longer be needed? What if, instead, you would like to pass your annuities on to your heirs as part of your financial legacy?
Unfortunately, once this type of rider is in a contract, most annuity providers don’t allow it to be removed—this means policyholders pay extra fees for something they don’t need (at least when market performance is strong).
If you find yourself in this situation, there are still a few options to consider:
- Take distributions from the annuity and then fund a life insurance policy with the annual proceeds. Please note, however, that you might face current tax ramifications for these withdrawals.
- Alternatively, you could use the after-tax distributions to replace a tax-inefficient asset (ordinary income on gains from the annuity) with life insurance, which is a more tax-efficient strategy (it is tax-free upon death).
How Does Annuity Maximization Work?*
- Exchange or transfer the annuity to a Single Premium Immediate Annuity (SPIA), which provides an income stream for a chosen number of years based on a single premium payment made upfront.
- The income stream is used to pay the life insurance premiums.
- Your beneficiaries receive the life insurance death benefit proceeds, generally tax-free.
Potential Advantages
- Reduce your taxable estate without giving up the ability to leave a legacy for beneficiaries.
- Access the cash value of the policy, if needed.
- Increase the benefits for your heirs by using life insurance for a larger, tax-free legacy.
- Decrease a current or future tax burden for yourself or for your heirs.
Is Annuity Maximization the right strategy for your needs? Contact your Janney Financial Advisor to learn more.
Working With Janney
Depending on your financial needs and personal preferences, as well as the fees and costs associated with those services, you may opt to engage in a brokerage relationship, an advisory relationship, or a combination of both. Each time you open an account, we will make recommendations on which type of relationship is in your best interest based on the information you provide when you complete or update your client profile.
If you engage in a brokerage relationship, you will buy and sell securities on a transaction basis and pay a commission for these services. Our recommendations for the purchase and sale of securities will be based on what is in your best interest and reflect reasonably available alternatives at that time.
If you engage in an advisory relationship, you will pay an asset-based fee, which encompasses, among other things, a defined investment strategy, ongoing monitoring, and performance reporting. Your Financial Advisor will serve in a fiduciary capacity for your advisory relationships.
For more information about Janney, please see Janney’s Relationship Summary (Form CRS) on www.janney.com/crs which details all material facts about the scope and terms of our relationship with you and any potential conflicts of interest.
By establishing a relationship with us, we can build a tailored financial plan and make recommendations about solutions that are aligned with your best interest and unique needs, goals, and preferences.
Contact us today to discuss how we can put a plan in place designed to help you reach your financial goals.
Janney Montgomery Scott LLC, its affiliates, and its employees are not in the business of providing tax, regulatory, accounting, or legal advice. These materials and any tax-related statements are not intended or written to be used, and cannot be used or relied upon, by any taxpayer for the purpose of avoiding tax penalties. Any such taxpayer should seek advice based on the taxpayer’s particular circumstances from an independent tax advisor.
* Annuities are offered by prospectus and a prospectus is available upon request. The prospectus contains important information about the annuity contract, including investment options, death benefits, and annuity payout options. Many annuities have surrender charges and other fees and expenses that may apply, consider these expenses as they apply to your specific circumstances. There is no assurance that any specific investment, annuity product, or strategy will be successful.
Annuity riders are optional guarantees available in some annuities. For example, a death benefit rider may be available at an additional cost to ensure your heirs receive at least the principal you invested upon your death (minus any withdrawals). Some riders are not optional and may be a standard cost associated with the annuity contract.
Janney makes no representation that an account will obtain gains or losses similar to those illustrated. This is being provided solely for informational and illustrative purposes, is not an offer to sell or a solicitation of an offer to buy the securities highlighted. The information provided should also not be relied on for accounting, legal, or tax advice. The factual information given herein is taken from sources that we believe to be reliable, but is not guaranteed as to accuracy or completeness. Opinions expressed are subject to change without notice and do not take into account the particular investment objectives, financial situation or needs of individual investors.
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