IRS Rules On Tax Treatment For Advisory Fees On Annuity Contracts

Security Benefit today announced that it has received a favorable private letter ruling (PLR) from the Internal Revenue Service (IRS) that payment of certain investment advisory fees from an annuity contract are not treated as a taxable event by the contract owner. This provides financial professionals and their clients with greater flexibility to incorporate non-qualified fee-based annuities in their portfolios.

“We are pleased to receive this favorable treatment from the IRS for our already fast-growing annuity business,” said Mike Reidy, Director of RIA Distribution for Security Benefit. “It represents the removal of a barrier to greater annuity adoption by registered investment advisors and their clients.”

Financial professionals can deduct client fees from the cash value of certain non-qualified Security Benefit annuities, without tax consequences for their clients. The advisory fees must only be for ongoing investment advice and cannot exceed an annual rate of 1.5% of the advisor contract’s cash value. The fees must be related only to the annuity and paid directly to the registered investment advisor.

“The PLR formalizes the tax treatment for our fixed index and variable annuity products,” said Doug Wolff, President of Security Benefit. “We offer, through our relationship with DPL Financial Partners, a powerful set of commission-free retirement solutions and will continue to develop innovative annuity products for this segment.”

Currently, Security Benefit offers a fixed index annuity, ClearLine, and the Elite Designs variable product on DPL’s platform to help meet the business needs of fee-only and fee-based advisors.

This article originally appeared on OA Online.


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