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The Split Annuity Strategy

Split Annuities are not annuity policies but a combination of two annuity products. A fixed period immediate annuity and a single premium tax deferred annuity. The split annuity tax strategy is structured in such away as to produce immediate tax-advantaged income for a guaranteed period of time and to restore your original principal at the end of that time period.

Deferred Annuity is used to restore the original principal at the end of the guaranteed period. While the Immediate Annuity provides a guaranteed monthly income for the same time period.

Advantages of a Split Annuity Strategy

  1. Dependable Income: Immediate Split Annuities can supplement your income by providing you with a safe, predictable, and guaranteed cash flow. Depending on your income needs, Immediate Annuity can generate a stream of monthly income anywhere from five to twenty years.
  2. Split Annuity Taxation Advantaged Income: Since a significant portion of your monthly income from the Immediate Annuity is considered a return of your original investment, it is tax-advantaged. In our Split Annuity Taxation example below, 81% of your monthly income payments would be Tax-Free.
  3. Split Annuity Tax-Deferred Growth and Principal Preservation: The Deferred Annuity portion of the split-annuity concept offers tax-deferred growth and you earn an interest rate that historically has been higher than average CD rates. In addition, your original principal is restored at the end of the guaranteed period which allows you to start the process over again at prevailing interest rates.

$100,000 Investment

Immediate Annuity
$41,457

 

Deferred Annuity
$58,543
at 5.50%

     
   

will grow
to

 

Monthly Income
$427.98

 

Yr. 1 $61,763
Yr. 2 $65,160

 

Annual Income
$5,135.76

 

Yr. 3 $68,744
Yr. 4 $72,525

 

for 10 years
for which

 

Yr. 5 $76,513
Yr. 6 $80,722

 

81%
is not taxed

 

Yr. 7 $85,161
Yr. 8 $89,845

 

Total Income
before Taxes

$51,357.60

 

Yr. 9 $94,787
Yr. 10 $100,000

Original Principal

Please note that the illustration is based on a guaranteed interest rate of 5.50% for 10 years. Withdrawals from an annuity prior to age 59 1/2 may result in a 10% penalty tax imposed by the IRS. Annuities are not FDIC insured.