Annuity Uses and Strategies
WHEN BUYING A FIXED RATE ANNUITY. BUY ONE THAT LOCKS IN
A SET RATE FOR THE ENTIRE DURATION.
Many fixed annuities offer a set rate locked in for the same
duration as the penalty for early withdrawal. Hartford Life
has a large selection of these types of plans. They offer
everything from a 10-year locked in guaranteed rate policy
all the way down to a 1-year policy. Just like a CD, the longer
the plan you choose, the higher the locked-in rate will be.
Click here for more.
LOOK AT A CHARITABLE REMAINDER ANNUITY TRUST RATHER THAN
One powerful financial planning tool used today with increasing
frequency is the Charitable Remainder Trust (CRT). It allows
donors to provide for their own financial security while setting
in motion a legacy gift to a chosen charitable organization.
This financial planning vehicle allows you to place assets
in trust. You can qualify for a current tax deduction when
you fund the trust. Trust assets can provide a stream of income
to you and/or your named beneficiary(ies) for a set time period
or for life. After this, the remaining trust assets go to
the charitable organization(s) you named. Since the trust
is not part of your estate, trust assets are not subject to
A CRT can be a unitrust or an annuity trust. In the case
of a Charitable Remainder Unitrust, a fixed percentage of
value of the trust assets is distributed to the donors. The
assets are valued annually. If the value of the assets in
the trust increases/decreases, the amount of income will change
since the same fixed percentage amount is paid to the donor(s).
A Charitable Remainder Annuity Trust is similar to the unitrust,
but provides a fixed dollar amount year after year. Any increase/decrease
in the value of the trust does not affect the payments. Variable
Annuities can be a solid choice for funding CRT's.
CONSIDER VARIABLE IMMEDIATE ANNUITIES FOR INCOME.
Immediate annuities are used for generating income. You deposit
a fixed dollar amount and receive a guaranteed income stream
for a variety of different time frames including the rest
of both your and your spouse's life if you wish. Most of these
annuities credit around 3% to the cash values remaining in
the annuity while you receive the income. If your time frame
is 10 years or longer, look at a variable immediate annuity.
Because you're working with a longer time frame you can account
for the market swings and receive a larger pay out. Be sure
to stick with a moderate investment portfolio like Growth
and Income or Index Funds.
USE 2 DIFFERENT PLANS FOR A SPLIT ANNUITY.
Split annuities divide your money into two portions. One
portion is set aside and left to grow back to your original
total deposit amount. The other side is set up to pay you
an income stream during the same time frame. This type of
plan is designed to give you current income and preserve your
original deposit amount. Rather than buying one split annuity
policy from one company, find the company with the most competitive
pay out and then the best company for letting the other portion
grow. Most companies will focus on being strong in one area
or another. Rarely will the same company offer the most competitive
product in both areas.
IF YOU HAVE A LARGE IRA THAT'S GOING TO BE PASSED ON TO
YOUR HEIRS, DO SOME ESTATE PLANNING TO AVOID THE HIGH TAXES.
This gets into some advanced Estate Planning, but everyday
people pass away with large IRA's that their heirs are going
to end up paying huge amounts of taxes on. In many cases,
by the time everything is said and done the heirs receive
less than 20% of the total IRA value. If you own an IRA with
$220,000.00 in it, left in your estate, your heirs could end
up with less than 45,000.00, with the rest going to taxes.
Because of the amount of wealth transfer we are starting to
see in this country, this is a strategy that needs to be mentioned.
Most brokers have never learned these kinds of techniques
and they can turn a huge taxable event into an amazingly powerful
wealth transfer vehicle.
Let's use the above situation as an example. Transfer the
IRA into an Immediate Life Only Annuity. Note that this is
an annuity designed to generate income and not for taking
advantage of tax-deferred growth. A life only annuity will
generate the highest pay-out option available because whenever
you die, the insurance company stops making all payments.
If you died 3 months after placing the IRA in this type of
annuity, the insurance company comes out smelling like a rose
because they keep the balance. But keep in mind that the payments
are larger because of this and they still base them on your
life expectancy. Let's say that the payments are $25,000.00
per year. You pay your income tax of say 28% and have $18,000.00
left. Use the $18,000.00 to purchase a life insurance policy
with a Death Benefit of say $375,000.00. All of these figures
will depend on your age and health. You need to have a child
or an Irrevocable Insurance Trust own the policy to get the
ownership outside of your estate. Now let's look at what we
have. Because the annuity that you transferred your IRA into
is worthless at your death, you have reduced your taxable
estate by the $225,000.00 instantly when you purchase the
Immediate Annuity. By using the income to pay for a life insurance
policy owned outside your estate, your heirs would receive
the policy Death Benefit of $375,000.00 100% income and estate
tax free. That's about $330,000.00 more than they would have
seen and $150,000.00 more than the IRA was worth to you at
Let us know if you need any help or have any questions regarding
these or any other investment strategies.
To contact us:
Tactical Wealth Advisors, LLP
8226 Village Harbor Drive
Cornelius, NC 28031