You already have an annuity, but is it still right for you?

You've worked hard to make your financial portfolio complete. But what if you could do more with your money? What if you want to ensure you're leaving the most you possibly can to your children? An annuity may not be the right financial strategy for this particular goal.

The Problem: Taxability

Annuities are great for funding your retirement. The problem comes when you want to leave what's left over to your children. Deferred annuities can be subject to both income and estate tax after you pass away. After all, they're designed to provide you with money during your retirement, not to be passed on to the next generation. In fact, as much as 70% of your annuity's value may be lost to taxes when you leave it to the next generation.

If you no longer need the income provided by your annuity (or haven't even started taking distributions), there's a smarter way to make that money work for your family. If you leave that money in the annuity, the interest it has earned will be subject to income tax when you pass away. The total value of the annuity is part of your taxable estate, which means it could be subject to estate tax. If that's the case, your family won't get the full benefit of all the money you worked so hard to earn and manage over the years.

The Solution: Annuity-Funded Life Insurance

One great solution to the tax problem is transferring wealth. The proceeds of a life insurance policy are tax-free, so it makes the most sense to transfer money from a taxable annuity into a tax-advantaged life insurance policy.

To make the switch, I can help you use distributions from your annuity to get a new life insurance policy. I can even help you set up a life insurance trust to ensure that your beneficiaries receive the policy's payout free of income and estate taxes. Here's how that works:

  1. You withdraw funds from your annuity by taking periodic withdrawals or by annuitizing.
  2. There may be income taxes due on your distributions, depending on your contract.
  3. Gift money to the Irrevocable Life Insurance Trust (ILIT).
  4. The trust uses that money to pay for the life insurance policy. You and/or your spouse would be insured.
  5. When you pass away, the life insurance death benefit goes to your beneficiaries with no income or estate taxes.

If you're interested in maximizing your annuity, call me or email me today!

This material was not intended or written to be used, and cannot be used, to avoid penalties imposed under the Internal Revenue Code. Always consult with your independent advisors regarding your particular financial and legal situation. The material here is presented for informational purposes only and should not be construed as tax or legal advice.