Shifting Tax-Deferred to Tax-Free

It’s no surprise, but when Americans are surveyed about retirement, one of the consistent results is the desire to avoid being a burden on their families. And as advisors, our job is to help them reach that goal. Not only can you keep them from burdening their families in the event of a long-term care need, but you can also help them save on taxes, all with one strategic move.

Many Americans have placed their money in conservative, tax-deferred annuities. Over the course of several years or even decades, these annuities have grown significantly. Now the problem is tax-deferred gains. If you take money out of the annuity, it is taxed as last-in-first-out, meaning the gain is taxed first. So, if your client experiences a long-term care event and you use the annuity for any type of home or facility care, your client is going to be taxed on the gain at ordinary income rates.

If your client is unable to perform two of the six activities of daily living, however, you can shift to an annuity that qualifies under the Pension Protection Act. The advantage of this is that not only is the cost basis returned tax-free, but the tax-deferred growth is also returned tax-free as are the long-term care benefits provided by the insurance carrier.

What you have done is shifted tax-deferred assets to tax-free distributions when your clients need it the most. This creates leverage because you’re not paying tax on those gains.

Only 11% of the population has actually shifted that long-term care expense to an insurance carrier. And it is one of the greatest multipliers of any type of failure that we see in retirement income planning. So, think about using some of those old fixed annuities to cover a long-term care need.

Our retirement income consultants can help you get started on the Annuity Audit process, so you can identify which annuities are no longer meeting your clients’ needs. Reach out at (800) 589-3000. We will be more than happy to show you our process and work with some of your clients.

Transformational Tactic

Help your clients plan for long-term care while converting tax-deferred assets into tax-free benefits in one simple move.

Recognize the opportunity to transform your business by taking our free course.