The Time is Right to Convert!

webrequest@medicaidannuity.com — Tue, 10 Aug 2010 19:30:53 GMT

If you have clients with old tax-deferred annuities that have substantial appreciation, the time for those clients to convert is now!

As a result of certain provisions within the Pension Protection Act of 2006, which went into effect this year, clients who convert old tax-deferred annuities into new tax-deferred annuities which contain riders for long-term care benefits can avoid paying income taxes on any of the gains - if the new tax-deferred annuity is used to pay long-term care expenses. This is a huge windfall for those clients who have always wanted traditional long-term care insurance but did not think they could afford it.

To illustrate, let's take the case of Alice Smith. in 1995, she purchased a $75,000 single premium tax-deferred annuity. Today, the annuity is worth $158,528. Alice understands that if she withdraws anything from the annuity, it will be taxed on a last-in first-out basis. In other words, the gain, which is always taxable, comes out first. Thus, if she wanted to withdraw $100,000 to pay bills, she would be taxed on the first $83,528. The balance, or $16,472, would be paid to her tax-free - part of her original investment. The remaining amount, or $58,528, would also be paid to her tax-free in that it is deemed to also be part of her original investment.

With Alice now being 75 years of age, deeply concerned about her possible need for long-term care, and not wanting to pay any income taxes on her old annuity if she can avoid it, she elects to convert her old annuity into a new annuity by way of a 1035 tax-free exchange. The new annuity offers her an excellent interest rate, and long-term care benefits of $6,000 per month for 60 months, if she ever needs them.

Krause Financial Services recently began offering several excellent hybrid products, such as the above referenced product that Alice elected to purchase. To find out more information, or to obtain a complimentary illustration, contact us today.

Dale's Blog

The Time is Right to Convert!