Annuities & Taxes

5 Takeaways on Annuities & Taxes

Sam-deleo

By Sam Deleo
Tucker Advisors Senior Content Specialist/Editor

First, let’s get this out of the way: Annuities are not all the same, nor are they for everyone. But if you are planning for your retirement, annuities can very effectively provide stable, long-term income.

The value that annuities can offer to retirees also extends to tax mitigation. You can use annuities as safe, tax-free havens for your savings as you build toward retirement. But it’s important to note that this tax-free status ends when you begin withdrawing from annuities. And the rates you pay then will scale as ordinary income, not a special lower rate, as with capital gains.

A qualified annuity means you have purchased the product with pre-tax dollars, while you would fund a non-qualified annuity with money that has already been taxed. Investors often fund qualified annuities from 401(k) plans, IRAs or other tax-deferred accounts. People can enjoy tax-free funding of a non-qualified annuity by using a Roth 401(k) or Roth IRA if specific guidelines are met.

Whether you purchase a qualified annuity or non-qualified annuity, the interest earnings will face the prevailing income tax rates at the time of the disbursements. Solely for the purposes of illustration, if you invested $100,000 and received $10,000 for 10 years, any money you receive above this amount will face income tax rates, regardless of whether it is a qualified or non-qualified annuity. This difference between your principal and this interest portion of the taxed annuity is often referred to as the “exclusion ratio.”1

The insurance issuer of the annuity will determine the exclusion ratio based on your life expectancy, so your monthly payments from a non-qualified annuity, for instance, would have a portion that is non-taxable and the interest portion, usually much smaller, that is subject to income tax rates. Additionally, if you live past your life expectancy, then 100 percent of your disbursements—which, remember, would now be more than the principal you paid for the annuity—are taxed as ordinary income.

Here are five other important tax considerations regarding annuities.

1. What if you withdraw from an annuity early?

You will most likely have to pay a 10-percent early withdrawal tax on any sum you withdraw from your annuity prior to age 59½. Some exceptions include:

– The owner dies
– The owner is disabled [within the guidelines of IRC 72 (m)(7)]2

– The gain on Pre-TEFRA contributions (prior to August 14, 1982)3

– It is a non-qualified immediate annuity, which begins its payout within a year of purchase
– 72(q) and 72(t) payments, where life-expectancy payments continue for five years or to age 59 ½, whichever take longer4

For the full list of exemptions to the early withdrawal tax, visit the IRS website section covering retirement plans and taxes on early distributions.

2. Can you transfer ownership of a non-qualified annuity?

You can transfer ownership by creating or subtracting joint owners, transferring the policy to a new owner, or reassigning the policy. When these ownership changes occur, the interest earnings at the time of the transfer are taxable to the original owner, and the 10-percent early withdrawal tax can apply if the original owner is not yet 59½. Exceptions include:

– Ownership is transferred from one spouse to another, or a spouse is deleted or added
– A divorce triggers the transfer of ownership
– The transfer is between the owner and his/her revocable (grantor) trust

Of course, it’s wise to think carefully about your grantor designations at the time of purchase.

3. What are the consequences of the LIFO policy (“last in, first out”) on taxing a non-qualified annuity?

The way the chronology of taxes occurs on a non-qualified annuity is as follows: First, your interest earnings are taxed; Secondly, your principal is taxed if it is a qualified annuity, but is received untaxed if it is a non-qualified annuity; and lastly, the insurer’s disbursements you receive are then taxed.

“This is the coveted feature of annuities,” says Tim Kilzer, business developer at Tucker Advisors, “to be able to still get paid with the insurer’s money after you have burned through all the principal investment you made on the policy in the first place, and then all the interest that money made. At this point, you are free and clear, you’re receiving the insurance company’s money. But that revenue has never been taxed, so you’ll still have to pay income tax on that money.”

4. What is the tax benefit of an immediate annuity, like a SPIA (single premium immediate annuity)?

 

Purchasing an immediate annuity gives you access to withdrawals in a much shorter time frame and, generally speaking, with a higher monthly income than a comparable fixed indexed annuity.

The insurance company applies a uniform tax across all of the payments in an immediate annuity, and that tax rate never changes. These annuities are great tools for people who want to retire immediately and may not have time to wait on a fixed income annuity, because they will know exactly what their income and tax rate will be going forward till the day they die.

5. Choosing the right taxable annuity depends on your individual circumstances?

The purpose of money dictates where you put it, and this applies to annuities, too.

“If I just want to grow money,” says Kilzer, “I can put it in a growth annuity with no income rider and the highest available rates and caps. It will be taxed by the LIFO sequence on a non-qualified annuity, or taxed as ordinary income on a qualified annuity. The fixed indexed annuity works great if I need deferred income but want guaranteed income for the rest of my life. And, if I need immediate income at the highest possible amount from that asset, and I don’t care about having access again to the principal, then a SPIA is the choice. I’ve seen plenty of people who have bought all three to serve different financial needs at different times in their lives.”

The way taxes affect annuities is a complex topic. There are many features and exceptions that that we did not cover here. Consequently, you should always review annuities with a certified financial planner or tax accountant during your assessment process, and certainly before selecting an annuity.

Tax and retirement planners can help you determine which tax preferences suit your portfolio, health circumstances and income timelines in the most beneficial manner to you. And then you will feel safe in choosing the annuity that best serves your situation.

Footnotes:
1. Annuities.org
2. Heather L. Schreiber, RICP
3. IBID
4. IBID

For Financial Professional Use Only.
Insurance-only agents are not licensed to offer investment advice.

 

 

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Join Tucker Advisors

Call 720-702-8811 or email COO Jason Lechuga at Jason.Lechuga@TuckerAdvisors.com

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(Video) Financial Advisor Video Marketing: Don’t Get Left Behind

Video Overview

Video Marketing: Don’t Get Left Behind
Tune in to see how we can bring powerful video to your brand

Tucker Advisors Video Marketing Expert Len Lorentz speaks about financial advisor video marketing best practices. Tune in to realize the full potential of video marketing on your prospects. 

This presentation was given at the Tucker Super Conference XVI in January of 2021 and is only for financial professional use. Insurance-only agents are not licensed to offer investment advice.

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Video Synopsis: Video Marketing For Financial Advisors

The 2nd biggest demographic using Facebook is the baby boomers. That is great news for financial advisor video marketing. We encourage advisors to use video and tell their story. People want to know who you are and what you do! Many advisors think that they don’t have a story or something exciting to share. We’re here to tell you that you’re wrong! You need to tell your story to your prospects because this is an industry built on making connections.

So much of finance marketing is trying to connect with your audience. Telling your story and taking pieces of interviews to create a visual representation of who you are and what you do adds a human element to your messaging. People don’t invest with bots, they invest with other people. Showing users who you are can and will lead to connections you never thought possible. As people, we have more in common than we don’t. Studies confirm that video has unparalleled power to break down walls, build connections, and get people to act.

When you talk about your financial advisory practice it’s necessary to talk about both the features and benefits of your practice. Our staff is very cognizant of this while we shoot and we encourage you to connect your past to your client’s future.

Other topics described in this session include:

-How long should my video be?

-Should I use my phone to make my videos?

-What should my video be about?

-What topics should I cover in my video? 

If you’d like to learn more you can schedule an appointment through the phone number below. 

Join Tucker Advisors

Call 720-702-8811 or email COO Jason Lechuga at Jason.Lechuga@TuckerAdvisors.com

Explore Super Conference 2021

If you’re on this page, you probably missed the 2021 Tucker Super Conference. No problem! Click on the image below for access to all of our recorded sessions.

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© 2020 Tucker Advisors | All Rights reserved.

(Video) Don’t Be a Stumped Chump: Overcoming Client Objections

(Video) Don’t Be a Stumped Chump: Overcoming Client Objections

Video Overview

 Don’t Be a Stumped Chump
Learning to Overcome Client Objections with Karlan Tucker & Darren Petty

Karlan Tucker is joined by Tucker Financial President Darren Petty to discuss how they overcome client objections in their financial planning process. In this video, Karlan and Darren explain the idea of selling the hole and not the drill. By this, we mean that it is crucial to educate your clients on plans to fix their problems and not push products. Products may be the vehicle of your plan, but providing value and context for your process will leave you and your clientele with a great return.

This presentation was given at the Tucker Super Conference XVI in January of 2021 and is only for financial professional use. Insurance-only agents are not licensed to offer investment advice.

Video

Video Synopsis

At Tucker Advisors, we sell plans; not products. Every prospect we talk to has a unique situation that needs to be attended to. There are no one-size-fits-all solutions for someone’s financial future. With every client demonstrating the need for custom solutions, it is critical to understand their objections. In this video, Karlan and Darren tackle many of the common objections they receive when meeting with prospects. You can expect to learn a lot about how to navigate difficult conversations with clients and families as they plan for the future.

Some of the topics include:

-How to help prospects that don’t fully understand a product
-How to get to the core of a prospect’s questions
-How to talk about liquidity
-Where are the right prospects for your practice
-How to talk about fees
-When to talk about age
-What clients read from 3rd parties

Another word for a challenge is an opportunity. Objections are an opportunity to show your prospects that you know your stuff. By bringing their concerns about the financial planning process to you, they are trying to understand how you think and if you are the right person to help. The right financial advisor is the one that understands where their client is coming from and educates them on why or how a strategy will benefit them.

For many financial and insurance-based companies a good scare is worth more than good advice. We disagree with that type of thinking and believe it is more important to correctly inform prospects and give them confidence. Every prospect has concerns about investing their hard-earned money into the market. Darren and Karlan take you in depth as they show you how to take your prospect from a skeptic to a client.   

From here, Karlan and Darren dive into the nitty-gritty of common objections they receive from clients. These topics can range from product education to advisor compensation transparency. Strap in and get ready to fortify your practice with these thoughtful responses to client objections.

Join Tucker Advisors

Call 720-702-8811 or email COO Jason Lechuga at Jason.Lechuga@TuckerAdvisors.com

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If you’re on this page, you probably missed the 2021 Tucker Super Conference. No problem! Click on the image below for access to all of our recorded sessions.

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(Video) $11-Million Written in 46 Days: Indexed Annuity Seminars

(Video) $11-Million Written in 46 Days: Indexed Annuity Seminars

Video Overview

$11M Written in 46 Days!
Top advisor, Karlan Tucker describes in detail exactly how he did it, and how you can use the same process

Founder Karlan Tucker is joined by Retire With Tucker President Darren Petty to discuss their recent success selling $11 million in indexed annuities and assets under management in 46 days. You will learn about the impact of getting a securities license, how to find new prospects, and the appointment process Karlan and Darren use to build their clientele.

This presentation was given at the Tucker Super Conference XVI in January of 2021 and is only for financial professional use. Insurance-only agents are not licensed to offer investment advice.

Video

Presentation Overview

Karlan and Darren sat down to talk through their appointment process and how it led to a very successful year for Tucker Advisors. You will learn how they use seminars to get in front of potential clients, how to define your ideal prospective client, and techniques to help you with the appointment process. 

From here, Karlan and Darren dive into how they like to format and present to their audience. Information on choosing a venue, maximizing your seminar space, and how to present are covered in detail to help you make the most of your opportunities. Both share on how they respond to the common opportunities and pitfalls associated with putting together a live speaking event.

Some of the topics include:

-How to host a great seminar
-How to connect with your audience
-What is the right number of attendees?
-How should guests be greeted and seated?
-When should we sit down with prospects?
-What is the process from start to finish? 

The number of people at your seminar can affect the dynamic of your presentation. While the seminar is a great stage to educate guests, you will need to connect with your audience on a more personal basis at the conclusion of the event. Karlan and Darren help point out that it isn’t just about how many people are in the room but also, how many of the people in the room are the right people. If you are not filling the room with the correct people, you need to revisit how your marketing process is pulling in leads to your practice.

Knowing who your ideal client is and what they value is a massive advantage when approaching a room full of strangers. Having this information allows you to differentiate yourself from the competition and really focus on providing value. It’s not just a sale, it is their financial future, their health, and what will offer the greatest return for their retirement plan. 

Additionally, Karlan and Darren talk through the steps of the appointment process, pointing out important milestones and objectives that you will come across when helping a prospect with their financial plans. With every client’s needs being different, this is a unique look into how each of our presenters are able to provide unique solutions for every client’s portfolio. Take this opportunity to position yourself as an expert to your clientele using techniques that are tested by the best. Given these points, we present to you Karlan Tucker and Darren Petty.

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Call 720-702-8811 or email COO Jason Lechuga at Jason.Lechuga@TuckerAdvisors.com

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For Financial Professional Use Only. NOT INTENDED FOR VIEWING OR DISTRIBUTION TO THE PUBLIC. Insurance-only agents are not licensed to offer investment advice.
© 2020 Tucker Advisors | All Rights reserved.

(Video) Tucker Super Conference Marketing Panel

(Video) Tucker Super Conference Marketing Panel

Video Overview

Tucker Advisors Marketing Panel
Learn from the Tucker Adivsors Marketing Panel.

Tucker Advisors Chief Marketing Officer Justin Woodbury is joined by the Tucker Advisors team to answer questions from the Tucker Super Conference 2021 attendee chat log.  

This presentation was given at the Tucker Super Conference XVI in January of 2021 and is only for financial professional use. Insurance-only agents are not licensed to offer investment advice.

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Video Synopsis: Tucker Advisors Marketing Panel 

During the 2021 Tucker Super Conference, we received a tremendous amount of questions. The Tucker Advisors Marketing team sat down to answer these questions LIVE and in depth to help financial advisors with their marketing efforts. 

To start, there was a question about how to feature in Kiplinger Magazine. For contracted advisors with Tucker, we have a vetting process that ensures that our top advisors are suggested to feature. If you are contracted with us, be sure to send us your enquiries about participating in our annual Kiplinger piece.

Another inquiry we received was about picking email topics. Attendees wanted to know what criteria is used to create email topics going out each week. Our panel suggested that the following criteria should factor into your email content plans.

1. Send your audience things they find useful

2. Take a walk in their shoes

3. Know what you’re posting, why you’re posting it, and who it is for

4. Don’t push products

5. Be sure that your messaging is compliant 

6. Find the channels that work for your message and don’t spread yourself too thin

Next the panel fielded questions on how to come up with website content and how this process works at Tucker Advisors. Alli and Sam reported that they like to do an interview and discovery with each advisor to find out what needs to be shared with your audience. Your website is a portal for prospects to know and understand your business before talking to you so lets give them something to talk about!

Other topics were included but not limited to:

-How to create content that is original and not stuffed with too many keywords

-How your website property should be perceived in reference to search engine optimization

-How Google Analytics and tracking your campaigns will lead to better insights and understanding of prospects

-The difference between brand awareness and lead generation

-What video equipment is necessary to produce your own content

 

 

Join Tucker Advisors

Call 720-702-8811 or email COO Jason Lechuga at Jason.Lechuga@TuckerAdvisors.com

Explore Super Conference 2021

If you’re on this page, you probably missed the 2021 Tucker Super Conference. No problem! Click on the image below for access to all of our recorded sessions.

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For Financial Professional Use Only. NOT INTENDED FOR VIEWING OR DISTRIBUTION TO THE PUBLIC. Insurance-only agents are not licensed to offer investment advice.
© 2020 Tucker Advisors | All Rights reserved.

(Video) Cryptocurrency: What You Need to Know

(Video) Cryptocurrency: What You Need to Know

Video Preview

CRYPTOCURRENCY: WHAT YOU NEEd TO KnoW
Everyone is talking about cryptocurrency, but what are the critical facts for investors?

Tucker Investment Analyst Amy Brandenburg looks at cryptocurrency in three of its different aspects: as a new system of money; as a virtual digital currency; and, as a digital asset. Amy traces how cryptocurrency functions and enables transactions across decentralized platforms.

This presentation was given at the Tucker Super Conference XVI in January of 2021 and is only for financial professional use. Insurance-only agents are not licensed to offer investment advice.

Video

Video Synopsis: Cryptocurrency—What You Need
to Know

For many years now, cryptocurrency has been one of the most talked about topics in the financial industry. But do most of us really understand what it is and how it works?

Bitcoin is the largest cryptocurrency, and like other cryptocurrencies, it is not generated or regulated by any government agency. It is created by individuals around the world using a free software and storing the currency in programs called “wallets.” The technology behind cryptocurrencies, Blockchain, is a platform that exists on thousands of individual computers around the world instead of in one place or server, enabling an incredibly secure and traceable trail of transactions.

Other characteristics of cryptocurrency include:
– Its price is determined by demand
– The value progresses by what people are willing to pay or exchange
– The currency is now accepted by some institutions and businesses
– Cryptocurrency’s next big “leap” will come as more businesses accept it

Some of the advantages of cryptocurrency for investors are that it can act as a hedge against inflation and a falling dollar, as well as provide airtight security—transactions cannot even be duplicated within Blockchain. Risks for investors include extreme price swings and the fact that there is no insurance like the FDIC for these currencies—you could even lose your “money” by forgetting your password.

With banks and hedge funds now purchasing cryptocurrencies, solidifying the market, it looks like they are here to stay. Individuals interested in buying cryptocurrencies, whether in the form of a coin, stock or exchange traded fund, should be clear about what their short- and long-term plans are for the investment. They would do well to also share these goals with their financial advisors, in order to better fit them into an overall plan for their portfolios.

 

tucker-super-conference-2021-ticket

Now that we’ve defined our ideal client and created awareness for our services using online channels it’s time to turn them into a lead.

Join Tucker Advisors

Call 720-702-8811 or email COO Jason Lechuga at Jason.Lechuga@TuckerAdvisors.com

Explore Super Conference 2021

If you’re on this page, you probably missed the 2021 Tucker Super Conference. No problem! Click on the image below for access to all of our recorded sessions.

tucker-super-conference-2021-ticket

Follow Along on Social Media

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5 Takeaways on Annuities & Taxes By Sam DeleoTucker Advisors Senior Content Specialist/EditorfacebooklinkedintwitterFirst, let’s get this out of the way: Annuities are not all the same, nor are they for everyone. But if you are planning for your retirement,...

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For Financial Professional Use Only. NOT INTENDED FOR VIEWING OR DISTRIBUTION TO THE PUBLIC. Insurance-only agents are not licensed to offer investment advice.
© 2020 Tucker Advisors | All Rights reserved.

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