Example: Buffered Annuity with a 1-Year Term, 15.00% Downside Buffer and 21.00% Upside Cap
The taxes your spouse may owe will be dependent upon the distribution option he or she chooses when he or she inherits your annuity. Any taxes owed on distributions are deferred until he or she receives them. Qualified (IRA) Annuities: A Spousal Beneficiary may elect to: (a) receive a one-time lump sum payment, (b) keep the buffered annuity in your name, continue to enjoy the benefit of compound
tax-deferred growth, and take out RMDs using his or her life expectancy or a payout option that provides income for a specified period of time, (c) switch the buffered
annuity into his or her name, continue to enjoy the benefit of compound tax-deferred growth, and take out RMDs using his or her life expectancy or a payout option
that provides income for a specified period of time, or (d) exchange the inherited annuity to another annuity if it is more beneficial to his or her specific situation,
continue enjoying the benefit of compound tax-deferred growth, and take out RMDs using his or her life expectancy or a payout option that provides income for a
specified period of time. Options (b), (c) and (d) potentially may help your spouse significantly reduce taxes on inherited buffered annuities by deferring taxes until
later in retirement when he or she may be in a lower tax bracket. ******
Non-Qualified (non IRA) Annuities:
A Spousal Beneficiary may elect to: (1) receive a one-time lump sum payment, or (2) select from options (b), (c) or (d) above. Options (b), (c) and (d) are referred to as a "Non-Qualified Stretch" and potentially may help your spouse significantly reduce taxes on inherited non-qualified buffered annuities by deferring taxes until later in retirement when he or she may be in a lower tax bracket. ******
Non-Spousal Beneficiaries And Inherited Buffered Annuities
The taxes a non-spousal beneficiary may owe will be dependent upon the distribution option he or she chooses when her or she inherits your annuity. Any taxes owed on distributions are deferred until he or she receives them.
Qualified (IRA Annuities):
A non-spousal beneficiary may elect to: (a) receive a one-time lump sum payment; or (b) distribute 100% of inherited qualified buffered annuities within 10 years which may help significantly reduce taxes by deferring taxes until later in retirement when he or she may be in a lower tax bracket.
******
Non-Qualified (non IRA) Annuities:
A non-spousal beneficiary may elect to: (a) receive a one-time lump sum payment, (b) switch the buffered annuity into his or her name, continue to enjoy the benefit
of compound tax-deferred growth, and take out RMDs using his or her life expectancy or a payout option that provides income for a specified period of time, or (c)
exchange the inherited annuity to another annuity if it is more beneficial to his or her specific situation, continue enjoying the benefit of compound tax-deferred growth, and take out RMDs using his or her life expectancy or a payout option that provides income for a specified period of time. Options (b) and (c) are referred to as a "Non-Qualified Stretch" and potentially may help your non-spousal beneficiary significantly reduce taxes on inherited non-qualified buffered annuities by deferring taxes until later in retirement when he or she may be in a lower tax bracket. ******
Following is a summary of key features and benefits that buffered annuities offer:
Buffered annuities are issued by life insurance companies and guarantees are backed by the financial strength and claims paying ability of the issuing insurance company. We work with only the highest rated insurance companies in the industry. Buffered annuities are regulated by FINRA and the SEC. *.**.***
Note: Some buffered annuities will allow you to lock in the performance up to the cap at any point during a term if the cap is reached before the end of the term.
Balancing Protection And Growth
Understanding the bells and whistles of buffered annuities, along with product variations and the different indexed account options available, may require additional expertise. Before you decide to buy a buffered annuity, you need to fully understand the benefits and limitations.
We will help you make an informed decision and select the best buffered annuity indexed account options available among the highest rated insurance companies that fit your unique financial situation and retirement income goals.
We will provide you with a Buffered Annuity Brochure, Fact Sheets, a Personalized Annuity Illustration unique to your situation, and a Product Prospectus, with complete information and restrictions that may apply, prior to you making any decision to purchase a buffered annuity.
To learn more, email lee@greenpastureswm.com.
Green Pastures is a big proponent of keeping things simple. When you get to a certain point in life, there's a tendency to want to simplify your life - including your investment and retirement income portfolio - and Buffered Annuities can help you accomplish this goal.
If you are nearing or in retirement, you may want to consider using a buffered annuity as an equity allocation replacement to help de-risk some of the equity allocation of your long term investment and retirement income portfolio while still gaining market exposure to the upside.
While buffered annuities aren't for everyone, they are a great transfer of risk solution that deliver you a level of principal protection, equity replacement, and can grow and compound tax-deferred. If you need to solve for one of these items, then you may want to consider adding a buffered annuity to your long term investment and retirement income portfolio.
You may want to consider using a buffered annuity to replace some of the equity portion of your overall asset allocation plan to help reduce downside portfolio risk.
Depending upon the indexed account option you choose, buffered annuities provide you with a level of protection ("buffer") when the market goes down.
Each indexed account option is the combination of the index you select (for example, the S&P 500 Index, Nasdaq-100 Index, Russell 2000 Index, etc.), the crediting method you select (also called an index strategy), and the time period for measuring the index performance you select (term).
Buffer
Buffers are designed to provide you with a degree of risk protection over a contract term to help lesson your exposure to risk. Following are the most popular buffers based upon the performance of the S&P 500 Index over a 1-year term:
10% buffer
15% buffer
20% buffer
The insurance company will protect against the specified percentage loss ("buffer") for the term - and you will be exposed to any losses greater than the buffer.
For example, if you select a 1-year term with a 15% buffer based upon the performance of the S&P 500 Index:
(1) If the S&P 500 Index falls anywhere between 0% and the 10% buffer for the contract term, then the insurance company will absorb the entire loss, and you will lose nothing (0%).
(2) If the S&P 500 Index drops 18% for the contract term, then the insurance company will absorb the first 15% of the loss, and you will lose 3%.
(3) If the S&P 500 Index drops 24% for the contract term, then the insurance company will absorb the first 15% of the loss, and you will lose 9%.
Example: Buffered Annuity with a 1-Year Term, 15.00% Downside Buffer and 15.50% Upside Performance Trigger
Buffered annuities have become extremely popular due to investors' concerns about stock market volatility and bear markets. Many individuals nearing or in retirement have turned to buffered annuities as part of their equity allocation because they provide a level of protection against sequence of returns risk.
Losses during bear markets combined with simultaneous retirement income distributions can seriously deplete a long-term investment and retirement income portfolio with extremely detrimental ramifications over the long term.
Additional Considerations
When buffered annuities mature, you may choose to:
(1) Cash in and surrender your contract without penalty,
(2) Renew your contract at the renewal buffer, cap and performance trigger rates without tax consequences so your gains can continue to grow and compound tax-deferred until later in retirement when you may be in a lower tax bracket and distributions may be taxed at lower rates. *
(3) Exchange your contract to another annuity without tax consequences so your gains can continue to grow and compound tax-deferred until later in retirement when you may be in a lower tax bracket and distributions may be taxed at lower rates. *
If you should die before liquidating a buffered annuity, your beneficiaries will get the remaining value of your buffered annuity as a death benefit – not the insurance company!
Below is a sample of Buffered Annuity Rates as of the date shown. Prices, ratings, yields, rates and availability shown are subject to change at any time.
Solve For Tax-Deferred Growth
If you purchase a buffered annuity in a non-qualified account (for example, assets held in individual or joint accounts that you already paid taxed on) - you don't pay taxes on the gains until gains are withdrawn - so your gains can grow and compound tax-deferred.
Buffered annuities are index-linked variable annuity products that (1) provide you with a defined degree of downside risk protection from market losses ("Buffer"), (2) offer higher growth potential than fixed index annuities during up markets, and (3) your principal can grow and compound tax-deferred.
Buffered annuities, in essence, act like hybrid variable annuities with some fixed index annuity features. They fall in the middle of fixed index annuities and variable annuities in terms of risk tolerance and growth potential.
Whereas fixed index annuities are designed to replace some of the fixed income portion of your overall asset allocation plan, buffered annuities are designed to replace some of the equity portion of your overall asset allocation plan.
* Surrender charges and other contract charges may apply that can reduce the principal if liquidated before maturity.
** Guarantees are backed by the financial strength and claims paying ability of the issuing insurance company.
*** The insurance company charges no liquidation penalty if held until maturity; however, similar to assets held in an IRA, buffered annuities are typically designed for long-term tax-deferred investing. If you take withdrawals before you reach age 59 1/2, then you may have to pay a 10% early withdrawal federal tax penalty in addition to ordinary income taxes. You should request and review a Product Prospectus, for complete information and restrictions that may apply, prior to making any decision to purchase a buffered annuity product.
**** The purchase of an annuity within a retirement plan that already provides tax deferral under sections of the Internal Revenue Code results in no additional tax benefits. An annuity should be used to fund a qualified plan based upon the annuity’s features other than tax deferral. All annuity features, risks, limitations, and costs should be considered prior to recommending the purchase of an annuity within a tax-qualified retirement plan. In addition to surrender charges, withdrawals are subject to income tax.
***** Please consult with and rely on your own legal or tax advisor and refer to your contract.
****** Please consult with and rely on your own legal or tax advisor and refer to your contract for situations of joint owners and annuitants.
Buffered Annuities Provide A Level Of Protection Against
Sequence Of Returns Risk
Buffered annuities also may be appealing if you are willing to forego the 100% principal protection that fixed index annuities offer in exchange for potential higher returns than fixed index annuities offer.
Depending upon the indexed account option you choose, buffered annuities offer a "cap" option or a "performance trigger" option that provide you with a level of performance when the market goes up.
Each indexed account option is the combination of the index you select (for example, the S&P 500 Index, Nasdaq-100 Index, Russell 2000 Index, etc.), the crediting method you select (also called an index strategy), and the time period for measuring the index performance that you select (term).
Cap
Caps provide you with the potential to earn a portion of the increase in an index over a contract term.
For example, if you select a 1-year term with a 16.25% Cap based upon the performance of the S&P 500 Index:
(1) If the S&P 500 Index gains any amount equal to a greater than 16.25% for the contract term, then you will earn 16.25%.
(2) If the S&P 500 Index gains any amount from 0% to 16.25% for the contract term, then you will earn the same percentage of interest that the index gains. For example, if the index gains 8.27% for the contract term, then you will earn 8.27%.
Performance Trigger
Performance triggers provide you with the potential to earn a specified percentage if the index gains any amount equal to or greater than 0% for the contract term.
For example, if you select a 1-year term with a 12.25% Performance Trigger based upon the performance of the S&P 500 Index:
(1) If the S&P 500 Index gains any amount equal to or greater than 12.25% for the contract term, then you will earn 12.25%.
(2) If the S&P 500 Index gains any amount from 0% to 12.25% for the contract term, then you will earn 12.25%. For example, if the index only gains 8.27%, than you will still earn 12.25%.
No single indexed account option consistently delivers the best return under all market scenarios. Performance will vary depending upon market conditions.
*Most (not all) insurance companies charge no annual fee on buffered annuities (if no Income Rider is attached). Advisor fees may be deducted and paid quarterly, in arrears, based upon the market value of the Assets on the last day of the current quarter.
Examples
Following are two detailed charts that illustrate how buffered annuities with buffers, caps and performance triggers work:
(1) The first chart illustrates a Buffered Annuity With A 1-Year Cap, and
(2) The second chart illustrates a Buffered Annuity With a 1-Year Performance Trigger.
This communication is issued by Green Pastures Wealth Management LLC ("GPWM"). The material contained on this website is for informational purposes only and GPWM is not soliciting any action based upon such material. It is not guaranteed as to accuracy, nor is it a complete statement of the financial products or markets referred to. Opinions expressed are subject to change without notice. GPWM may maintain long or short positions in some of the financial instruments referred to. Unless stated specifically otherwise, this is not a recommendation, offer, or solicitation to buy or sell a security and any prices or quotations contained herein are indicative only. Material accessible through this website is not to be construed as investment advice, nor does it constitute a representation that the investments described herein are suitable or appropriate for any person. To the extent permitted by law, GPWM shall not be held liable for improper or incorrect use of data or information contained in any electronic publications. Information, data and related graphics contained in electronic publications are not legal documents and are not intended to be used as such. GPWM gives no warranty, expressed or implied, as to the accuracy, reliability, utility or completeness of any information contained in any electronic document. Past performance is no guarantee of future results. GPWM offers no accounting, tax, or legal advice. GPWM is a Connecticut Registered Investment Advisor which may only transact business where it is properly registered, or qualifies for an exemption or exclusion from registration requirements. GPWM accepts clients nationally per applicable state registration regulations and the "de minimis" exception.
Green Pastures Wealth Management LLC | P.O. Box 110475 | Trumbull, CT 06611 | 203.449.9889 | lee@greenpastureswm.com
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