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Latest tax updates and 3 key tax benefits for clients

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When it’s time to think about annual income taxes, there’s a lot to keep in mind. As you work with clients, remember tax-advantaged products like fixed indexed annuities (FIAs). Not only do they offer tax benefits, a FIA may also help them save more for retirement.

As you think through the considerations, current tax code changes are an important part of the mix. Our annual tax reference guide and tax tables can help simplify, and potentially save you time, searching for the latest updates.

Current tax updates at a glance

You’ll find current tax rates, contribution limits and more tax facts that you need to know in these two resources.

Tax Reference Guide Tax Tables


As you find out what’s new and look for ways to help your clients, consider other tax-advantaged vehicles that could be worth discussing.

3 key (and potentially overlooked) tax benefits of FIAs

Most clients are probably familiar with 401(k)s and IRAs, but there are other vehicles with tax advantages like a fixed indexed annuity (FIA), for example. A FIA combines growth potential and protection from market downturns with tax benefits that can complement other financial vehicles. 

Here are three tax benefits a fixed indexed annuity offers:

1. No contribution limits

While 401(k)s and IRAs offer tax advantages, they also cap how much money can be contributed each year. Non-qualified funds in a FIA do not have IRS-imposed contribution limits, which may appeal to older clients who have maxed out their annual 401(k) and IRA contributions.

2. Tax-deferred growth

With the potential for interest credits that are tied to the performance of a stock market index (without having to invest directly in the market), a client has the potential to receive interest that’s based in part on the performance of a specific index. The growth within the FIA isn’t taxed until it’s withdrawn, similar to retirement savings vehicles such as 401(k)s and non-Roth IRAs. Because FIAs can also help protect retirement savings from market downturns, there is less downside risk than 401(k) or IRA assets that are invested directly in the market. (Keep in mind that the benefits of tax deferral apply only to annuities funded with non-qualified dollars that a client has already paid income tax on.*)

3. Favorable tax treatment for retirement income

Unlike withdrawals from 401(k)s and IRAs, which are fully taxable (except Rot IRAs), clients only pay taxes on the interest earned in their FIA for non-qualified premium. Because the income from a FIA may be made up of a combination of interest and the return of the client’s original premium, only a portion of it would be taxable. This feature can help clients use FIA income in conjunction with fully taxable withdrawals from other sources to help lower their overall tax burden in retirement.

Important FIA reminders: Like a 401(k) and IRA, a FIA may be subject to federal and state income tax and, except under certain circumstances, will be subject to an IRS penalty if payments start before the annuity owner reaches age 59 ½. And withdrawals that exceed the free withdrawal amount allowed may be subject to a withdrawal charge or a possible market value adjustment, which could result in the loss of principal.

The big picture

With their tax benefits and ability to provide growth potential and protection from market downturns, FIAs can play an important role within a retirement savings plan. They can also complement other sources of growth potential and retirement income, including:

  • Stocks, bonds and mutual funds held in taxable brokerage accounts
  • Savings in tax-deferred accounts like a 401(k)
  • Other tax-advantaged vehicles such as a Roth IRA

Using a mix of these tools and staying current on tax changes for the year can be vital to helping clients manage risk and provide growth potential before and after retirement.

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*Under current tax law, the Internal Revenue Code already provides tax deferral to qualified money, so there is no additional tax benefit obtained by funding a qualified contract, such as an IRA, with an annuity; consider the other benefits provided by an annuity, such as lifetime income and a Death Benefit.

Any information regarding taxation contained herein is based on our understanding of current tax law, which is subject to change and differing interpretations. This information should not be relied on as tax, legal or financial advice and cannot be used by any taxpayer for the purposes of avoiding penalties under the Internal Revenue Code. We recommend that taxpayers consult with their professional tax and legal advisors for applicability to their personal circumstances.

For financial professional use only. Not to be used with the offer or sale of annuities.

Indexed annuities are not stock market investments and do not directly participate in any stock or equity investments. Market indices may not include dividends paid on the underlying stocks, and therefore may not reflect the total return of the underlying stocks; neither an index nor any market-indexed annuity is comparable to a direct investment in the equity markets.

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