Generational Wealth Planning

Client Scenario


When Olivia inherited her mother’s non-qualified annuity she learned she had four options:

  1. Take a lump sum distribution,
  2. Take payments over five years to distribute or delay the tax burden,
  3. Annuitize the policy; or
  4. ‘Stretch’ the annuity payments out for Olivia’s life expectancy.

Each of the options came with some downside. She and husband Joe were sure they didn’t want to take the lump sum distribution. It would move them into the second-highest tax bracket for the year and increase their adjusted gross income to the point that it would disqualify them from making Roth IRA contributions.

The five-year option wouldn’t help much in either area. Taking five $50,000 distributions would also increase their AGI beyond Roth IRA contribution limits and put them in that higher bracket, or otherwise simply delay the tax hit.

Annuitization wasn’t an option, either, since they’d be required to take the money out of the market, give it to an insurance company, and let the company decide the value of an income stream they could build from it. They didn’t want to lose control.

Their financial advisor researched the stretch option and learned that Olivia and Joe could 1035 exchange her mother’s annuity into a lower-cost, no-load variable annuity, and then begin taking payments via the stretch provision.

The gains from non-qualified money would be taxed first, and the payments would escalate over time. And because costs were lower in the no-load VA, their account could benefit from the compounding power of low-cost tax deferral and potentially provide them additional annual income over a 40-year time horizon.

Olivia plans to use some of the income to increase her annual gifts to the National Parks Conservation Association, Special Olympics and others.


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