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Latest tax updates and 3 key tax benefits for clients

When it鈥檚 time to think about annual income taxes, there鈥檚 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 clients save more for retirement.

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

As you find out what鈥檚 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 tax-advantaged retirement products that can be purchased with non-qualified money. A fixed indexed annuity funded this way combines growth potential and protection from market downturns with tax benefits that can complement other financial vehicles. 

Here are three tax benefits a FIA can offer:

1. No contribution limits

While qualified plans like 401(k)s and IRAs offer tax advantages, they also cap how much money can be contributed each year. Without IRS-imposed contribution limits on non-qualified funds, FIAs may appeal to clients who have maxed out their annual 401(k) and IRA contributions.

2. Tax-deferred growth

With interest credits tied to the performance of a stock market index, FIAs give clients the potential to benefit from index gains without investing directly in the market. The growth within the FIA is not taxed until it鈥檚 withdrawn, similar to retirement savings vehicles such as 401(k)s and non-Roth IRAs.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. (There are no additional tax benefits to purchasing a FIA with qualified money.)

3. Favorable tax treatment for retirement income

Withdrawals from qualified 401(k)s and IRAs are fully taxable. However, clients only pay taxes on interest earned in their FIA funded with non-qualified money. Since this income may consist of interest and the client鈥檚 original premium, only a portion of the FIA distribution may be taxable. This feature can help clients use non-qualified FIA income in conjunction with fully taxable withdrawals from other sources to help lower their overall tax burden in retirement. 

Important FIA reminders:

• FIAs funded through a rollover from a tax-qualified vehicle are subject to the same tax rules as an IRA or a 401(k).
• 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 陆.
• 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.

Insights on 麻豆传媒 Connect. Tips, tools and resources to grow your business by helping clients retire with confidence.

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.