Annuity investors are urged to take action this year, as changing tax rules will greatly impact returns after 2016
Advisors are wise to alert clients with prescribed annual annuity investments, as pending tax changes will greatly impact their returns in the new year.
“The impact is significant in regards to the prescribed annuity contracts, which have unique tax advantages,” says Michael Gentile, chartered financial consultant and president at BenefitsPlus.
“What’s going to happen is on January 1, 2017, they’re going to switch from the current 1971 mortality table to the year 2000 mortality table. The net impact will be that more of the income will be taxable as a result of that change.”
According to Gentile, the taxable portion of annuities is poised to jump considerably once the new mortality tables take effect.
“For example, on a $100,000 deposit for a male aged 65, the income that’s generated on a prescribed annuity contract is $5,785 per year. The taxable portion is $5. Under the new mortality assessment the taxable portion is going from $5 to $867.”
He adds that financial advisors who don’t alert clients to the upcoming changes are doing them a disservice, as those who take action now can gain from the existing structure.
“They should let them know that the rules are changing and that there is, from a tax position, from an income position, there is an opportunity that exists now,” he says. “There’s no point trying to close the barn door after all the horses are gone.”
Any individual who is thinking of taking advantage of a prescribed annuity contract, if they do it before the end of the year, then they will have a grandfathered contract, which means they get the benefit of the old taxation rules.”
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