Thinking of an annuity?
On January 1, 2017, new rules will change the way prescribed annuities are taxed, making them less tax-effective than they have been in the past. Fortunately, if you act before the deadline, you can lock in the existing — more generous — tax treatment for life. Here’s what you need to know.
What are prescribed annuities, and why are the rules changing?
An annuity enables you to receive guaran- teed income for life with a one-time pur- chase. The new rules affect “prescribed annuities,” which are purchased with non- registered funds. With a prescribed annuity, the interest portion is spread out over the annuity’s presumed term, reducing the tax- able portion of each payment. However, taxation is currently based on mortality tables from 1971, when life expectancy was shorter than it is today. Using more recent mortality tables, the tax- able portion of prescribed annuity pay- ments will increase.
No time like the present
While the new rules don’t kick in until the beginning of next year, by purchasing before the end of this year, you can lock in the tax-preferred treatment for life. Better yet, payments need not begin right away for you to qualify. The only requirement is that we get the prescribed annuity set up, to lock in the rates before January 1, 2017.
So, if you think a prescribed annuity might be a good choice for you — or if you’re not sure and need some guidance — give us a call as soon as possible. We’ll go over the details and complete any contrac- tual requirements before the end of 2016.