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November 10, 2004 at 07:00 PM
Inherited IRAs Seen As A Vast Untapped Market For Annuities
Tampa, Fla.
Given an abysmal savings rates, a slow-growth economy, an uninspiring stock market and continuing terrorism jitters, theres one thing advisors can do to fire up their practices and offer prospects financial peace of mind: sell more annuities.
That was a common theme of 3 educational sessions of the Society of Financial Service Professionals annual Financial Service Forum, held here last month. The presentations encompassed 2 sessions on annuities sales ideas by Tom Hegna, a corporate vice president for New York Life, New York, and a third talk by Jim Otar, a financial advisor with Partners in Planning, Richmond Hill, Ont., Canada, who focused on the vehicles performance relative to other investment tools over 103 years of stock market history.
“The annuity is the most underutilized [financial] tool in America,” said Hegna. “Yet, it is the only product on the market that will guarantee your senior citizens No. 1 concern, which is ensuring they dont run out of money.”
The biggest pool of prospects for annuities, said Hegna, are those with individual retirement accounts, including 401(k) and 403(b) plans. While these products enjoy tax-deferred growth, theyre taxed during the distribution phase.
If, however, a deceased individuals spousal beneficiary rolls over monies from an IRA to an annuity following the individuals death but prior to a death claim, then the funds can pass from one vehicle to the other tax-free. The recipient must, however, begin taking required minimum distributions (RMDs), and pay taxes on distributions, at life expectancy.
These “inherited IRAs” represent a vast untapped market. Yet, many advisors either dont know about the tax advantage or fail to pursue the opportunity by establishing relationships with the beneficiaries, according to Hegna.
“We as advisors have done a good job developing relationships with clients but a miserable job building relationships with the beneficiaries,” says Hegna. “Start putting beneficiaries on your birthday card lists and other mailings. When you develop a relationship and provide value by talking to them about inherited IRAs, you build credibility.”
Among the most popular and easy-to-understand products, notes Hegna, is a life annuity with a cash refund rider. Assuming an initial investment of $100,000, the product may be structured, for example, to provide the annuitant with $10,000 every year for life, depending on the persons age. Should the annuitant die after one year, the balance of the invested amount ($90,000) can be refunded to a designated beneficiary, such as a spouse or child.
The cash refund rider among other legacy options disprove a common misconception of prospects: That when they die, undistributed funds in life annuities automatically remain with the insurance company.
Such legacy options, said Hegna, also can prove powerfully attractive to prospects who want to keep their memory alive with designated beneficiaries, or who believe that certain estate inheritors lacking in financial maturity would be better served if they received monies as regular monthly payouts, rather than as a lump sum distribution.
