Fee-Based Annuities Get IRS Nod
August 14, 2019 by Melanie Waddell
The Internal Revenue Service has reversed course, allowing Nationwide and Lincoln Financial in private letter rulings to treat the payment of an advisory fee from a variable, fixed indexed or hybrid nonqualified annuity to qualify as a nontaxable distribution.
The move is being hailed by fee-only advisors as a means for them to get compensated for their advice.
Over the last 10 years, “the most consistent piece of friction that advisors have come to us about [is] how not being able to take their fee out of a nonqualified annuity was really a headache for them in using this type of product,” Craig Hawley, head of Nationwide Advisory Solutions, told ThinkAdvisor in a Monday interview.
The IRS ruling essentially conforms the tax treatment of properly structured advisory fees from nonqualified annuities with those from qualified accounts such as 401(k)s, 403(b)s and IRAs, which typically are not treated as taxable distributions, Nationwide explained.
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