Security Benefit’s ClearLine Annuity Provides “Tax Alpha” New Research Shows
November 16, 2021 by Security Benefit
TOPEKA, Kan.–(BUSINESS WIRE)–Security Benefit today applauded the findings of new research published by David Blanchett, Managing Director, Head of Retirement Research, PGIM DC Solutions. The paper highlights the potentially significant income benefits derived from using a tax exclusion ratio, in non-qualified products, available as part of its ClearLine Annuity Rising Income Rider.
“Blanchett’s work helps reinforce the value ClearLine represents for clients of RIAs and fee-only advisors,” said Doug Wolff, President of Security Benefit Life. “Many of ClearLine’s features, including the exclusion ratio, were the direct result of our partnership with DPL Financial Partners, and the unprecedented access we had to direct input from advisors themselves.”
“We try to design products that address RIA needs and concerns,” added DPL Founder and CEO David Lau. “The tax efficiency of annuity payouts is one of them. David’s paper is extremely helpful for advisors looking to quantify the benefit of the exclusion ratio in ClearLine.”
“How to Increase After-Tax Income for GLWB Annuities,” published by AdvisorPerspectives.com, notes that the tax benefits of annuities during distribution can be complicated and differ across products, but some stand out.
“Strategies such as fixed index annuities that are able to generate more after-tax income are often described as generating ‘tax alpha’ for investors,” said Lau. “This study explores the potential impact of converting income from a GLWB using tax exclusion ratio taxation, versus traditional methods—turns out the benefits of the exclusion method can be significant.”
The paper explains that there are generally two ways distributions from annuity accounts are taxed: either all gains are taxed first, which can lower income in the early years of retirement (possibly longer) and thus overall, or by using an exclusion ratio where gains can be amortized (spread out) over the life expectancy of the annuitant. The amount of gains taxed are the same in both cases, but when gains are taxed is the key difference.
“The potential benefit of tax exclusion ratio taxation can be even higher for individuals with higher tax rates and higher expected returns,” noted Lau.
“Clients in non-qualified accounts can not only benefit over time in the accumulation phase from tax-deferred growth, but also during decumulation by essentially ‘deferring’ taxes even longer when leveraging the exclusion ratio,” said Wolff. “Fixed index annuities (FIAs) like ClearLine are a smart option for advisors when considering both their strategic and tactical approaches to retirement planning.”
ClearLine offers even more potential advantages.
“ClearLine certainly delivers a powerful combination of accumulation potential, tax-deferral and long-term income benefits,” said Mike Reidy, Head of RIA Distribution for Security Benefit. “And, in addition to the tax exclusion ratio, our private letter ruling from the IRS allows financial professionals to deduct fees from ClearLine’s cash value during the accumulation phase without tax consequences for client portfolios.”
“In addition to our ClearLine FIA, Security Benefit has made a concerted effort to provide financial professionals with tax-efficient withdrawal strategies in variable annuities too.” Helping to mitigate the tax bite during payout is one way to address the objection that annuities are taxed at ordinary income rates during withdrawals.
Security Benefit’s ClearLine Annuity is available exclusively through DPL Financial Partners.
About Security Benefit
Security Benefit Corporation (“Security Benefit”), through its subsidiary Security Benefit Life Insurance Company (SBL), a Kansas-based insurance company that has been in business for 129 years, is a leader in the U.S. retirement market. Security Benefit together with its affiliates offers products in a full range of retirement markets and wealth segments for employers and individuals and held nearly $50 billion in assets under management as of June 30, 2021. Security Benefit, an Eldridge business, is one of the fastest growing U.S. retirement companies and continues its mission of helping Americans To and Through Retirement®. Learn more at www.securitybenefit.com and follow us on LinkedIn, Facebook or Twitter.
Neither Security Benefit Life Insurance Company (SBL) nor Security Distributors is a fiduciary and the information provided is not intended to be investment advice. Security Benefit, its affiliates and subsidiaries, and their respective employees, representatives, do not provide tax, accounting, or legal advice. Any statements contained herein concerning taxes were not intended as and should not be construed as tax advice, nor should they be used for the purpose of avoiding federal, state, or local taxes and/or tax penalties. Please seek independent tax, accounting or legal advice.
The Security Benefit ClearLine Annuity, a single premium deferred fixed index annuity, form ICC18 5500 (9-18), is issued by SBL. The Rising Income Rider form ICC18 5520 (9-18), an optional rider available for purchase with the ClearLine Annuity and for which an annual charge applies, is issued by SBL. In Idaho, ClearLine is issued on contract form ICC18 5500 (9-18) and the Rising Income Rider is issued on form ICC18 5520 (9-18). Product features, limitations, and availability may vary by state. Not available in all states.
Guarantees provided by annuities are subject to the financial strength of the issuing insurance company. Annuities are not FDIC or NCUA/NCUSIF insured; are not obligations or deposits of, and are not guaranteed or underwritten by any bank, savings and loan or credit union, or its affiliates; and are unrelated to and not a condition of the provision or term of any banking service or activity.
Fixed index annuities are not stock market investments and do not directly participate in any equity, bond, other security or commodities investments. Indices do not include dividends paid on the underlying stocks, and therefore do not reflect the total return of the underlying stocks; neither an index nor any fixed index annuity is comparable to a direct investment in the equity, bond, other security or commodities markets.
Variable annuities are issued by SBL in all states except New York, and distributed by Security Distributors, a subsidiary of SBL. SBL is a subsidiary of Security Benefit Corporation (Security Benefit). SBL is not authorized in and does not conduct the business of insurance in the state of New York.
Michael Castino, Director of Public Relations, Security Benefit
Grant Waldvogel, Prosek Partners