A "Split Annuity" is a strategy where you purchase two annuities, one Income Annuity and one Deferred Annuity, and as a result enjoy higher after-tax income without any risk to principal.

The annuities are structured to provide immediate guaranteed income for a period of time, usually 5 to 10 years, and to guarantee the preservation of the client's original principal at the end of the time period. The amount of income depends upon the amount of money paid into each policy, and the current rates at the time of policy issue.

For example, if a male, age 65, has $200,000 of cash, with the primary objective of principal preservation, with maximum income, then the following is how a split annuity would meet their objectives:

Example: $200,000 Premium

To optimize monthly income, we split up the total investment like this:

• $41,448 allocated to an Income Annuity
• $158,552 allocated to a Deferred Annuity

The Income Annuity produces monthly income, starting one month later, of $388.49,¹ and that payment is guaranteed for 10 years.

The Deferred Annuity produces exactly $200,000 after 10 years, guaranteed, returning 100% of principal to the policy owner.

But, there's more - Tax Advantages!

Under Internal Revenue Code Section 72, the payments from the Income Annuity are partially income-tax free.

93.2% Excluded from Income Tax

In this case, 93.2% of each monthly payment is income-tax free. 

If your income tax rate is 30%, the tax is only $7.93 per month, leaving $380.56 per month of after-tax spendable income.

This is the equivalent of a CD paying 2.97% for 10 years. As of the writing of this article, the best 5 year CD rate is only 1.90%, and the national average is only 1.15%. (source: www.bankrate.com). For the record, the best rate is a bank that is rated C- (C minus) by Weiss Ratings.

$223.45 More Income Per Month

After tax, the Split Annuity produces $380.56 per month. The best 5 year CD only produces $316.66 per month. At a 30% income tax rate, we must subtract $95.00 from that amount, which only leaves the CD investor with $221.66 per month of after-tax income. That means the Split Annuity investor has $158.90 more income, per month, with no market risk.

71.7% More Income Per Month

That's 71.7% more spendable income than the best CD in the nation, without any market risk (the only risk is the claims paying ability of the issuing insurance company). Remember, the CD is only guaranteed for 5 years. In years 6-10, there is no way to predict what the CD might pay.

The purchase of an annuity is a serious decision, with significant financial implications for you and your family. That is why it is always a good idea to use a professional life insurance agent when purchasing an annuity. The best choice is an insurance agent that has earned the professional designation, Chartered Life Underwriter.

For a free initial consultation and a custom split annuity proposal, call today (800) 680-5596, or click here.

 ¹ This figure is accurate as of the date of publication for an annuitant in Texas, Male, Age 65. Other states, other ages, will produce slightly different results. Please call for a quote that is specific to your situation.