Many people are exhausted after tax season. They’ve been busy tracking down receipts, filing paperwork and meeting deadlines. Many just want a break from numbers for a while.
But it’s an agent’s job to steer these weary taxpayers in the right direction. Make the aftermath of Tax Day (April 17) an opportunity to help your customers prepare for Uncle Sam’s inevitable visit next year.
The best way to do that is by touting the tax benefits of annuities and other similar insurance and retirement savings products that can shield their income from taxes.
Tax-Deferments: IRAs and Other Retirement-Savings Plans
Offering retirement plans that can also act as tax shelters will score major points with consumers still raw from tax time.
Some workplaces already offer tax-deferred retirement savings plans, such as 401(k)s and 403(b)s. But, sometimes, these opportunities do not kick in until after a certain period of employment, or they may involve certain limitations and restrictions.
Regardless, hard-working individuals should be taking advantage of all available opportunities to set aside a maximum amount of savings now without the IRS taking its initial cut.
IRAs are a good investment vehicle to fulfill this purpose.
Your clients should be informed, though, that they will eventually have to pay the deferred taxes on their savings stashed away in an IRA.
Although, if they are not prematurely pulling cash from the intended retirement prize, they may be in a lower tax bracket by the time they’ve retired. This means that what they end up paying in taxes on the IRA funds at a later date may be less than what they would’ve paid on the earned income during their working years.
Additionally, taxes are paid only on the amounts withdrawn, while the remaining money in the IRA continues to accrue unburdened by a tax.
Money invested in an annuity also accrues tax-deferred. And unlike an IRA, there is no yearly cap on contributions.
That makes those closer to retirement age target customers for this type of investment; especially when they have some catching up to do on retirement planning.
It’s important to note, though, that once it’s time to dip into the annuity, not all income is untaxed.
Direct contributions by the consumer to the annuity are free from the sting of taxation. But earnings derived from the investment are taxed at the regular income-tax rate.
However, consumers opting for an annuity will have some flexibility in payouts.
And those wanting a steady cash flow that extends beyond their working days, and is (somewhat) tax-free, will likely find an annuity to be a desirable choice.
Life Insurance Policies
Life insurance is important. And certain types of life insurance policies may also qualify for certain tax benefits.
Qualifications for favorable tax treatment are dependent on IRS review.
IRS consideration is typically based on whether an insurance policy is meant to be insurance rather than an area of investment. In other words, life insurance is generally meant to replace income and not assets.
One benefit of a whole life insurance policy is that it can grow interest on the savings portion of the policy tax-free.
So long as your clients do not sell, surrender or withdraw from a policy with a cash value component, taxes are deferred. Otherwise, typically, the difference between what was paid in (insurance premium) and what is paid out (cash value), is taxable as income.
Also, the first $50,000 of any employer-paid contribution to a term life insurance policy does not need to be reported to the IRS as taxable income.
There are several other tax rules governing life insurance products, as well as various tax benefits in certain situations. Some are good, and some are not-so-good. None is necessarily bad. It just depends on what your client wants.
For instance, if family security is not needed, a whole life insurance policy is not the best option if your client is looking for a higher rate of return.
On the flip side, where family security is important, they may be able to save their loved ones from the burden of taxation on the death benefit received from a life insurance policy.
Annual Financial Review: Competitive Rates and Value-Based Products and Selling
Now that consumers made it through another tax season, they can finally take a deep breath.
And, depending on the hit they took, they may decide to shop around for some better deals for next year; especially with the recent news of corporate tax cuts.
That’s where you come in. Keeping rates competitive and fees minimal can work in your favor. You don’t want to consistently quote above-and-beyond fellow insurers.
Also, as your existing clients seek to cut costs by downsizing or eliminating their current coverage and/or investments, consider bundles or other incentives as an alternative.
But avoid selling strictly based on price. An emphasis on value is equally (if not more) important, including eventual and recurring tax benefits to the consumer.
This keeps your clients happy long-term, especially at tax time, which keeps your residual income streaming in year after year.
Annuity.org's mission is to help you through tough financial situations. We’re committed to providing this help the best way we know how — through informative, easy-to-understand articles. Annuity and structured settlement owners can use our website as an educational tool and vantage point for connecting with our trusted partner, CBC Settlement Funding, to sell their payments for cash. Founded in 2004, CBC Settlement Funding is an annuity purchasing and pre-settlement funding company based in Conshohocken, Pennsylvania. CBC works with a variety of financial products, such as annuities, structured settlements, casino payouts and lottery winnings.