The Internal Revenue Service has released a private letter ruling that blesses efforts by a life insurer to pay fees to a customer’s fee-based financial advisor directly from the annuity contract value.
The holder of an annuity covered by the ruling will not have to include the amount spent on advisory fees in federal taxable income, according to the IRS.
The new letter ruling, Private Letter Ruling 202104001, appears to be nearly identical to three annuity advisory fee letter rulings the IRS sent in December 2020.
Rebecca Baxter, the IRS official who signed the letter rulings sent out in December, also signed the latest ruling.
Similar to those in December, the new ruling covers payments of fees equal to up to 1.5% of contract cash value per year, on a family of products that includes a variable annuity, a non-variable indexed annuity, and an indexed annuity that’s registered with the U.S. Securities and Exchange Commission as a variable product.
The recent letter rulings’ references to SEC-registered indexed annuities, or registered index-linked annuities (RILAs), makes the new rulings somewhat different from similar rulings released about a year ago which covered traditional variable annuities and non-variable indexed annuities.