Fee-Based Annuities & Tax Consequences

The IRS Changes Rule on Fee-Based Annuities

According to reports this week, the Internal Revenue Service has issued a tax ruling that may cause a rise in fee-based annuities sales by registered investment advisers.

Variable annuities may sound like great money makers, but hidden fees can eat into your profits. Between commissions, surrender charges and high annual fees, you could be paying 2-3% per year or more.

The last couple of years, in response to the now defunct DOL rule,  some brokerage firms have eliminated commission-based IRAs in favor of fee-based accounts.

Fee-based annuities don’t come with commissions to compensate the registered investment adviser (RIA), who instead are paid a flat, annual fee.

While fee-based annuities may have some advantages for investors, such as giving investors a better sense of how much they’re paying for advice and how much for the investment, there is still that annual asset-based fee to worry about, and until now, the tax consequences.

If a nonqualified annuity was sold outside of a retirement account, it counted as a taxable distribution at ordinary income rates, reflected on a 1099 tax form.

According to reports on August 9, the IRS furnished a private letter ruling to insurer Nationwide allowing RIAs to pull clients’ advisory fees from the cash value of a non-qualified fee-based annuity without any adverse tax consequences. This could mean a huge boost in sales for fee-based annuities. But is it in the best interest of investors?

This information is all publicly available and provided to you by The White Law Group. If you are concerned about your fee-based annuities please call our offices at 888-637-5510 for a free consultation with a securities attorney.

The White Law Group is a national securities fraud, securities arbitration, and investor protection law firm with offices in Chicago, Illinois and Franklin, Tennessee. The firm represents investors in FINRA arbitration claims throughout the country.

To learn more about the firm’s representation of investors, please visit www.whitesecuritieslaw.com.