New VA Tax Advantage?!

or Register to post new content in the forum

20 RepliesJump to last post

 

Comments

  • Allowed HTML tags: <em> <strong> <blockquote> <br> <p>

Plain text

  • No HTML tags allowed.
  • Web page addresses and e-mail addresses turn into links automatically.
  • Lines and paragraphs break automatically.
Jun 13, 2007 11:44 am

This just came to me via email this morning...have any of you heard anything about this?


Another advantage: income-tax relief


VA withdrawals are taxed as ordinary income, just like an IRA or 401(k). This is mitigated in part because many retirees are in a lower income bracket. And lawmakers, aware of the shortfall in the retirement safety net, are making further efforts to lighten the load for those choosing to save for retirement in a variable annuity.


The Retirement Security for Life Act would exempt individuals from paying Federal taxes on one half of the taxable income, up to a maximum of $20,000 annually, generated by nonqualified annuities that make lifetime payments. For a typical American in the 25-percent tax bracket, this would provide an annual tax savings of up to $5,000, according to the Americans for Secure Retirement.

Jun 13, 2007 11:49 am

I haven't heard anything about it.  I would imagine it must be a proposal in the early stages, because if it was anything close to real the VA wholesalers would be talking about it a LOT.

Jun 13, 2007 11:50 am

Cha-Ching!!!

Jun 13, 2007 11:59 am
joedabrkr:

I haven't heard anything about it.  I would
imagine it must be a proposal in the early stages, because if it was
anything close to real the VA wholesalers would be talking about it a
LOT.





It's not too surprising that this is proposed by "Americans for Secure Retirement" (who could be opposed to that?)



But a quick look at a sponsor's list...



http://www.paycheckforlife.org/aboutus/coalitionmembers.htm



American Council of Life Insurers
Association for Advanced Life Underwriting
National Association for Variable Annuities
Jun 13, 2007 12:03 pm
AllREIT:
joedabrkr:

I haven't heard anything about it.  I would imagine it must be a proposal in the early stages, because if it was anything close to real the VA wholesalers would be talking about it a LOT.



It's not too surprising that this is proposed by "Americans for Secure Retirement" (who could be opposed to that?)

But a quick look at a sponsor's list...

http://www.paycheckforlife.org/aboutus/coalitionmembers.htm



American Council of Life Insurers
Association for Advanced Life Underwriting
National Association for Variable Annuities


Annuity tax abuse? AllREITARD.

Jun 13, 2007 12:05 pm

They have been throwing this idea around for about 2 years now... Maybe it will go down in 2014.

Jun 13, 2007 12:12 pm

I hope it does go through.  It's proposed for all annuities, not just VAs


It will certainly help many of my clients who own older annuities and who were not made aware of (or they forgot) the fact that anything they take from the annuity will be ordinary income.  For some of them who really wanted to cash out the annuity in the future, this came as a big whammo.

Jun 13, 2007 12:13 pm
AllREIT:
joedabrkr:

I haven't heard anything about it.  I would imagine it must be a proposal in the early stages, because if it was anything close to real the VA wholesalers would be talking about it a LOT.



It's not too surprising that this is proposed by "Americans for Secure Retirement" (who could be opposed to that?)

But a quick look at a sponsor's list...

http://www.paycheckforlife.org/aboutus/coalitionmembers.htm



American Council of Life Insurers
Association for Advanced Life Underwriting
National Association for Variable Annuities


Well duh...I figured the insurance industry was lobbying hard for such a move.  If you think this legislation is unlikely, I think you woefully underestimate the power of the insurance lobby...it's much stronger thank the bank lobby or even the credit union lobby.  I can't think of a special interest group with more pull on capital hill, frankly.

Jun 13, 2007 12:40 pm
Indyone:
AllREIT:
joedabrkr:

I haven't heard anything about it.  I would imagine it must be a proposal in the early stages, because if it was anything close to real the VA wholesalers would be talking about it a LOT.



It's not too surprising that this is proposed by "Americans for Secure Retirement" (who could be opposed to that?)

But a quick look at a sponsor's list...

http://www.paycheckforlife.org/aboutus/coalitionmembers.htm



American Council of Life Insurers
Association for Advanced Life Underwriting
National Association for Variable Annuities


Well duh...I figured the insurance industry was lobbying hard for such a move.  If you think this legislation is unlikely, I think you woefully underestimate the power of the insurance lobby...it's much stronger thank the bank lobby or even the credit union lobby.  I can't think of a special interest group with more pull on capital hill, frankly.



One thing for sure....the insurance lobby wields much more power than the managed money/asset based fee lobby.

Jun 13, 2007 12:44 pm

If this goes through, I could see 35-40% of my book in annuities of some kind...

Jun 13, 2007 1:13 pm
Indyone:

Well duh...I figured the insurance industry was
lobbying hard for such a move.  If you think this legislation is
unlikely, I think you woefully underestimate the power of the insurance
lobby...it's much stronger thank the bank lobby or even the credit
union lobby.  I can't think of a special interest group with more
pull on capital hill, frankly.





I could think of several, e.g the NRA.



More seriously this won't pass because it would cause a huge amount of
tax leakage. Having annuities be taxed as ordinary income is the price
of tax deferral. Same as a traditional IRA.



The basic idea in tax theory is that pre-tax money entering a tax
sheltered vehicle gets taxed on exit, while post tax money is home free.



Also, the IRS is anyways displeased at a the potential for the use of
lifetime annuities to avoid/defer transfer taxes. Thus we have all the
farmers etc involved.

Jun 13, 2007 1:32 pm
AllREIT:
Indyone:

Well duh...I figured the insurance industry was lobbying hard for such a move.  If you think this legislation is unlikely, I think you woefully underestimate the power of the insurance lobby...it's much stronger thank the bank lobby or even the credit union lobby.  I can't think of a special interest group with more pull on capital hill, frankly.




I could think of several, e.g the NRA.

More seriously this won't pass because it would cause a huge amount of tax leakage. Having annuities be taxed as ordinary income is the price of tax deferral. Same as a traditional IRA.

The basic idea in tax theory is that pre-tax money entering a tax sheltered vehicle gets taxed on exit, while post tax money is home free.

Also, the IRS is anyways displeased at a the potential for the use of lifetime annuities to avoid/defer transfer taxes. Thus we have all the farmers etc involved.


AllREITARD, are you aware that the Congress is a little uncomfortable with our ability to finance the turning of our 65 year olds into 100 year olds and they are looking at ways to take pressure off of the social security system? Do you have any clue as to how much money is going to get sucked away from grubby fee chargers like you? Instead of using the term "shelter your taxes", I will now be able to say "shelter taxes AND income." HAHAHAHAHA!!!!!!!!!!!!!

Jun 13, 2007 6:12 pm

AH I thought the insurance lobby was #1 and #2 was banking. Oh wait I am right.. No it's the gun association? Are you kidding, he must be kidding. It's the insurance companies last time I checked.

Jun 13, 2007 7:34 pm
AllREIT:
Indyone:

Well duh...I figured the insurance industry was lobbying hard for such a move.  If you think this legislation is unlikely, I think you woefully underestimate the power of the insurance lobby...it's much stronger thank the bank lobby or even the credit union lobby.  I can't think of a special interest group with more pull on capital hill, frankly.



I could think of several, e.g the NRA.  That depends upon who you ask, but I'll let that pass.
More seriously this won't pass because it would cause a huge amount of tax leakage. Having annuities be taxed as ordinary income is the price of tax deferral. Same as a traditional IRA. Ever consider the "tax leakage" of the Roth IRA?!!  Gee, amazingly THAT passed with bipartisan support and NONE of the income is taxed coming out.

The basic idea in tax theory is that pre-tax money entering a tax sheltered vehicle gets taxed on exit, while post tax money is home free.  Think earnings and appreciation in a Roth IRA, not to mention insurance death benefits.

Also, the IRS is anyways displeased at a the potential for the use of lifetime annuities to avoid/defer transfer taxes.  While I wouldn't expect them to promote any tax avoidance/deferral program, I'd like to see the poll among IRS employees supporting your claim of "dsipleasure".  Thus we have all the farmers etc involved.


Sometimes, I wonder how much of what you post is just made-up on the spot...

Jun 13, 2007 10:08 pm
AllREIT:
Indyone:

Well duh...I figured the insurance industry was lobbying hard for such a move.  If you think this legislation is unlikely, I think you woefully underestimate the power of the insurance lobby...it's much stronger thank the bank lobby or even the credit union lobby.  I can't think of a special interest group with more pull on capital hill, frankly.






More seriously this won't pass because it would cause a huge amount of tax leakage. .


Which would still be cheaper than fixing Social Security. . . and Congress knows it.

Jun 13, 2007 10:29 pm
Indyone:

[quote=AllREIT] [quote=Indyone]Well duh...I figured
the insurance industry was lobbying hard for such a move.  If you
think this legislation is unlikely, I think you woefully underestimate
the power of the insurance lobby...it's much stronger thank the bank
lobby or even the credit union lobby.  I can't think of a special
interest group with more pull on capital hill, frankly.



I could think of several, e.g the NRA.  That depends upon who you ask, but I'll let that pass.


Me
too. Bank and insurance is way up there. But this is measure that is
supported by the insurance industry and would opposed by everyone who
cared about the tax cost and consequences of giving VA's such favorable
treatment.


If this sort of proposal did pass, I'd bet a hot dog and two beers that that this exemption does not carry over into AMT.


More seriously this won't pass because it would cause a huge amount
of tax leakage. Having annuities be taxed as ordinary income is the
price of tax deferral. Same as a traditional IRA. Ever
consider the "tax leakage" of the Roth IRA?!!  Gee, amazingly THAT
passed with bipartisan support and NONE of the income is taxed coming
out.


Roth IRA's are tiny (e.g limited to $4000/year) while VA's are unlimited in scope. Also Roth IRA's are funded using post tax dollars, while the VA's in question would be non-qualified.


The basic idea in tax theory is that pre-tax money entering a tax
sheltered vehicle gets taxed on exit, while post tax money is home
free.  Think earnings and appreciation in a Roth IRA, not to mention insurance death benefits.


And does the initial money to fund the Roth IRA come before or after taxes?


Insurance death benefits, sort
of work under this theory (since insurance is post tax expense) but
also they have their own specific tax exemption.


Also, the IRS is anyways displeased at a the potential for the use of lifetime annuities to avoid/defer transfer taxes.  While
I wouldn't expect them to promote any tax avoidance/deferral program,
I'd like to see the poll among IRS employees supporting your claim of
"dsipleasure".  Thus we have all the farmers etc involved.


Sometimes, I wonder how much of what you post is just made-up on the spot...


83.4% ,
More seriously, the IRS has been concerned about fraudulent tax
shelters that involve swapping assets for annuities. You can google for
it if you like.

Jun 13, 2007 10:37 pm
ExPropTrader:

Which would still be cheaper than fixing Social Security. . . and Congress knows it.





That's probably the best argument in favor of such a system.



Were really seeing a multi-pronged approach on this, from ERISA reform:
(so 401(k) plans now have investment management), added incentives for
savings (RothIRA's, QDI/LTCG @ 15%) etc.



I could see some system favored annuitisation as being part of such a
scheme. Alot of thought would have to go into the design of a "standard
form" for such annuities, similar to how homeowners insurance uses
standard forms.



That would result in the most competative market, by making it easy for consumers to shop on price/return

Jun 13, 2007 11:07 pm
AllREIT:
ExPropTrader:

Which would still be cheaper than fixing Social Security. . . and Congress knows it.




That's probably the best argument in favor of such a system.

Were really seeing a multi-pronged approach on this, from ERISA reform: (so 401(k) plans now have investment management), added incentives for savings (RothIRA's, QDI/LTCG @ 15%) etc.

I could see some system favored annuitisation as being part of such a scheme. Alot of thought would have to go into the design of a "standard form" for such annuities, similar to how homeowners insurance uses standard forms.

That would result in the most competative market, by making it easy for consumers to shop on price/return


Why don't you shut the f**k up while you're only way behind?

Jun 13, 2007 11:28 pm
AllREIT:
Indyone:

[quote=AllREIT] [quote=Indyone]Well duh...I figured the insurance industry was lobbying hard for such a move.  If you think this legislation is unlikely, I think you woefully underestimate the power of the insurance lobby...it's much stronger thank the bank lobby or even the credit union lobby.  I can't think of a special interest group with more pull on capital hill, frankly.



I could think of several, e.g the NRA.  That depends upon who you ask, but I'll let that pass.


Me too. Bank and insurance is way up there. But this is measure that is supported by the insurance industry and would opposed by everyone who cared about the tax cost and consequences of giving VA's such favorable treatment.


If this sort of proposal did pass, I'd bet a hot dog and two beers that that this exemption does not carry over into AMT. This is the one statement you made that I actually agree with.  No doubt, congress would limit what the wealthy could do with annuities.


More seriously this won't pass because it would cause a huge amount of tax leakage. Having annuities be taxed as ordinary income is the price of tax deferral. Same as a traditional IRA. Ever consider the "tax leakage" of the Roth IRA?!!  Gee, amazingly THAT passed with bipartisan support and NONE of the income is taxed coming out.


Roth IRA's are tiny (e.g limited to $4000/year) while VA's are unlimited in scope. Also Roth IRA's are funded using post tax dollars, while the VA's in question would be non-qualified.  Roths are relatively small, but the Roth 401(K) is not.  Furthermore, while VA's are only limited by what the insurance company is willing to underwrite, the tax-free INCOME that can come out with a tax advantage under this proposal IS limited.  ...and what the heck do you mean post-tax vs non-qualified?!!!  In my universe there's no difference!!!


The basic idea in tax theory is that pre-tax money entering a tax sheltered vehicle gets taxed on exit, while post tax money is home free.  Think earnings and appreciation in a Roth IRA, not to mention insurance death benefits.


And does the initial money to fund the Roth IRA come before or after taxes?  I mentoned nothing about the initial deposits.  I'm talking about the appreciation and income...a totally different story.


Insurance death benefits, sort of work under this theory (since insurance is post tax expense) but also they have their own specific tax exemption.  ...as would the annuity under this provision.


Also, the IRS is anyways displeased at a the potential for the use of lifetime annuities to avoid/defer transfer taxes.  While I wouldn't expect them to promote any tax avoidance/deferral program, I'd like to see the poll among IRS employees supporting your claim of "dsipleasure".  Thus we have all the farmers etc involved.


Sometimes, I wonder how much of what you post is just made-up on the spot...


83.4% , More seriously, the IRS has been concerned about fraudulent tax shelters that involve swapping assets for annuities. You can google for it if you like.  I think you're talking private annuities here which are a whole different animal than what is being discussed.



"Roth IRA's are funded using post tax dollars, while the VA's in question would be non-qualified."


That statement is destined to go down as a forum classic...


Really...no offense, but you should stick to subjects that you have a firmer grasp of...

Jun 14, 2007 12:46 am
Indyone:

"Roth IRA's are funded using post tax dollars, while the VA's in question would be non-qualified."


That statement is destined to go down as a forum classic...


Really...no offense, but you should stick to subjects that you have a firmer grasp of...





Long day in the salt mines... (And all this I'd just finished
explaining qualified dividends vs non-qualified dividends, where
Qualified dividends have been taxed, and non-qualified have not been
taxed)



Looking in the legislation as filed, it appears to give favor to SPIA's
and any other annuity that has been cast into a IA, and punishes
anything that does not It also seems to avoid the Annuity in IRA problem, since those payments remain fully taxable.



http://www.paycheckforlife.org/images/1010.pdf



Since you can buy a SPIA any time you want to, this doesn't favor VA's per se over other forms of investment.



The real people who will get hurt by this are muni bond salesmen, since
it now makes more sense to convert cash to a SPIA then have it sitting
in muni bonds. And those most benefitting will be SPIA salesmen.



The more I think about this, the more this seems like a reasonable scheme to encourage people to annuitise assets over holding them and keeping them exposed to market risk.



The biggest danger is that people will buy fixed level SPIA's and then get whacked by high inflation.