What is a triple-split annuity?

In the Learning Center, three categories of annuities — immediate, fixed and equity-indexed — have all been explained. But which one is the best financial tool? What if an annuity owner could combine all three types to create a safe yet incredibly effective annuity concept? Well now it can be done — by using an innovative concept called the triple-split annuity. This exciting new concept is excellent for the annuity owner who needs a guaranteed income, yet who wants to continue to accumulate wealth as well. Best of all, this concept lets the annuity owner participate in the growth potential of the stock market with absolutely no market risk!

The guaranteed income is generated by an immediate annuity. (Please visit the "Immediate Annuity" link for more information.) Additional funds accumulate with interest in a MYGA fixed annuity (Multi-Year Guarantee Annuity). These earnings are not taxed until withdrawn, so the annuity owner benefits from tax-deferred growth. In a defined number of years, this growth will equal the original premium value. In addition, the ability to participate in the upside potential of the stock market with no downside risk by using an EIA gives the annuity owner the potential for a hedge against inflation.

By combining all three annuities — a single premium immediate annuity, a MYGA fixed annuity and an equity-indexed annuity — the annuity owner gains tax advantages that may assist them in reaching their financial goals. (Please visit the "Deferred Annuity” and “Immediate Annuity” links for more information.)

 

How does a triple-split annuity work?

The triple-split annuity concept is simply allocating a lump sum of money into three different annuities to create a highly effective annuity plan. For example, if an individual had $125,000 to invest, it could be split in the following three ways: (Please note: if all the funds for a split annuity are qualified monies, all distributions from the annuities will be taxable.)

The first step is to take $100,000 and divide it into two parts — $44,945 into a single premium immediate annuity ("SPIA Income") and $55,055 into a MYGA fixed annuity (Multi-Year Guarantee Annuity). For this example, both of these annuities have a contract term of ten years. The 10-year term SPIA, which generates the same income for either a male or a female, could provide a guaranteed monthly income of $456.87, which is an annual income of $5,482.44. Eighty-two percent of each monthly payment is a return of premium (called the exclusion ratio) and is not taxable with nonqualified funds. This means that only 18% of each payment is considered taxable income, so $374.63 of monthly income or $4,495.60 of annual income is not taxable. The ten-year result is that an individual would be guaranteed to be paid $54,824.40, of which $44,956.00 would be not taxable. The $55,055* that was put in the MYGA would grow to $100,000 at the end of ten years. (*This result is based on a 6.15% 10-year Multi-Year Guarantee Annuity.)

The remaining $25,000 is placed into an equity-indexed annuity. This annuity is very similar to other fixed annuities, but with one basic difference — the way the gains are credited. Instead of crediting a company-declared interest rate, the gains are linked or indexed directly to the growth of a leading stock market index, such as the S&P 500. Like other fixed annuities, there is a 100% guarantee of principal plus minimum interest — guaranteed even if the market goes down. An individual cannot lose a penny, as long as he or she stays in the contract for the full contract term. Unlike other fixed annuities, however, the owner has the potential to make more money if the index goes up. Thus, the potential for a hedge against inflation is available. Many people agree that the stock market offers the greatest opportunity for growth. However, for many people it is their perception of the risk associated with the market that keeps them from participating in this growth potential. What is so exciting about this concept is that the annuity owner can now participate in the growth potential of the stock market with the peace of mind that comes with knowing they have absolutely no market risk!

In short, regardless of the volatility (ups and downs) of the stock market, interest rate fluctuations or changes in the economy, the total investment is secure with this annuity plan. Plus, the income payments are guaranteed to continue. The strong guarantees of annuities provide an individual with the peace of mind that can free him or her from worrying about the future.

 Is the triple-split annuity right for me?

This answer may depend on many factors, but if you are searching for a way to preserve your wealth and increase your spendable income, the triple-split annuity concept might be just what you are looking for. With the right annuity plan you can enjoy the peace of mind that comes with a guaranteed income, the preservation of your capital and a possible reduction in your current taxes. A triple-split annuity is a valuable planning tool that could help you enjoy the retirement lifestyle you deserve.