Page 21 - Investment Advisor June 2022

ANNUITIES UPDATE

By Allison Bell

Use an Annuity to Solve the Stretch

IRA Problem

Gary Mettler says the IRS closed one door but left another door open.

ary Mettler believes he has dis- SECURE ACT CHANGES
covered a solution to a painful The Secure Act changed the rules for
Gnew estate planning problem: those who inherit traditional IRAs. Now,
the death of the stretch IRA. most heirs must take all of the cash out
Mettler — who bills himself as the of the IRA within 10 years, and include
“Annuity Maestro” and is author of all of that cash in taxable income during
“Always Keep Your Hands Up!” — that 10-year period.
says the new IRS proposed required The Secure Act exempts four classes
minimum distribution regulations of “eligible designated beneficiaries”
show that taxpayers can get around from the 10-year rule:
the effects of the change by making • Surviving spouses.
single-premium immediate annuities, • Disabled or chronically ill benefi-
or SPIAs, part of their estate planning TAX EXPENDITURES ciaries.
arrangements. The federal government sees the tax rev- • Beneficiaries who are not more than
The IRS intends to let taxpayers pass enue lost due to use of IRAs, 401(k) plans 10 years younger than the original
both SPIAs and inheritable defined ben- and other retirement savings arrange- IRA owner.
efit pension plans on to children, grand- ments as “tax expenditures.” When mem- • Any children of the IRA owner who
children, siblings, friends and other bers of Congress propose legislation that are under age 21.
heirs in a way that can hold down the will cut federal revenue or increase fed- The changes have discouraged use of
heirs’ tax bills, Mettler told Investment eral spending, they are supposed to offer the stretch IRA strategy by IRA owners
Advisor in an April email. ideas for offsetting the impact of those who believe that the beneficiaries inher-
From the perspective of the IRS, changes on the federal budget deficit. iting the IRAs may well be adult chil-
the stretch IRA rules in the Setting One popular source of pay-fors is dren, nieces, nephews or other people off
Every Community Up for Retirement rules that help relatively affluent people the eligible designated beneficiary list.
Enhancement (Secure) Act of 2019 cut the amount of federal income taxes
apply only to defined contribution plans they and their heirs pay. Lawmakers THE SPIA SOLUTION
and investment IRA accounts, not to used a change in the stretch IRA rules An immediate annuity is a contract
SPIAs, Mettler added. to offset about $16 billion of the Secure that pays a stream of benefits that
SPIAs “are not the industry favorite Act budget impact over the period from starts shortly after the customer pays
sons,” Mettler said. “The annuity indus- 2020 through 2029, according to a for the annuity. A SPIA is a type of
try itself has not been very supportive, Congressional Research Service report immediate annuity that’s purchased
as they prefer their agents to continue on the stretch IRA proposal. with a large lump sum of cash. Mettler
to sell investment/savings design annu- As most advisors know, RMD rules has based his SPIA solution proposal
ity contracts.” limit an IRA holder’s ability to use a on his reading of the text of the new
But increasing use of SPIAs may traditional IRA as a tax shelter or as an proposed RMD regulations, including
now be a good tool for helping clients estate planning tool, according to the the proposed regulations.
meet planning objectives, Mettler said. Congressional Research Service analy- Based on the text in that section of the
If Mettler is right, advisors might find sis. But, before 2020, any heirs who proposed regulations, “anyone can do a
themselves helping clients find the life inherited traditional IRAs could stretch stretch IRA by purchasing a very simple
Adobe Stock help those clients pass retirement sav- basing calculation of the RMD amounts anyone they want, without conditions,
the account’s tax-deferring power by
IRA periodic payment annuity and name
insurers that do like to sell SPIAs, to
to succeed them,” Mettler said.
ings on to heirs.
on their own life expectancy.
JUNE 2022 INVESTMENT ADVISOR 19