We are kicking off our National Annuity Awareness Month series by highlighting 4 retirement planning opportunities utilizing SPIAs. But first, what exactly is a SPIA?
A single premium immediate annuity (SPIA) is an annuity purchased with one large upfront payment that immediately begins paying you back your purchase price plus a modest interest rate in installments. SPIAs are one of the simplest types of annuity contracts.
4 Retirement Planning Opportunities Utilizing SPIAs:
1. Taking Distributions Before Age 59½
Since distributions coming from a SPIA funded with cash are exempt from the additional 10% federal tax for early distribution, a SPIA can be a unique and useful tool to generate income before age 59½. Even if the SPIA is funded via 1035 exchange, the payments will still be exempt from the additional 10% federal tax for early distribution if the annuity option selected is life contingent.
2. Bridging the Gap to Social Security Benefits
Early retirees can use a Period Certain SPIA to delay taking Social Security benefits (to accumulate a higher Social Security benefit amount) and bridge that gap between retiring and the time they start collecting benefits.
3. Funding Liabilities
Owners can use a SPIA to fund payment of a life insurance policy, long-term care, trust or other obligation that will last for a specified period of time (or the remainder of the owner’s life).
4. Tax Management
Owners can use the exclusion ratio treatment a SPIA provides to spread out their tax liabilities over a period of years. This is particularly attractive to more affluent retirees because part of each payment is a return of principal and would not be considered taxable ordinary income.
[Source: Forbes.com]
Do you have clients who could benefit from any of these strategies?
Call Madison Brokerage today at (973) 435-3784, or e-mail sdunn@madisonbrokerage.com
