Combo / Split Annuity Rates Nov 2022 | Income with tax exclusion & return of premium at end of term.

The split annuity is a way to get a guaranteed income for a set period of time that can be mostly tax excluded.

In this example a $500,000 premium will guarantee:
Part 1: $119,240.00 premium to an immediate annuity
$2,183.09 per month of income for 60 months at up to 90% tax exclusion.
Part 2: $380,760.00 premium to a Multi-Year Guarantee Deferred Annuity
5.60% guaranteed interest rate for 5 years will grow to return $500,000

Part 1 taxable:
Assuming 100% cost basis (previously taxed funds) the payment may only be 10% taxable. A $2,183.09 payment with 90% exclusion ratio = $1,964.78 excluded and $218.30 taxable. At a 25% tax bracket there would be $54.57 tax on each payment. $2,128.51 would be the after tax income.

Part 2 taxable:
$380,760.00 is the cost basis and $119,240 is the interest gain. The interest is tax deferred until withdrawn. After the 5th year if the annuity is surrendered/cashed out the $119,240 is fully taxable as income. If 1035 exchanged to a new split annuity, the tax deferral continues. If using a partial 1035 exchange and placing funds into a new split annuity, a prorated cost basis will be used. Assuming the same rates the new cost basis on the immediate annuity side would be about $87,400 and give an exclusion ratio of about 66%.

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