THE LEGACY (STRETCH) IRA ANNUITY (“S-ANNUITY”): DEFER INCOME TAXES AND CONFER BENEFITS OVER THE COURSE OF SEVERAL FAMILY GENERATIONS

Introduction. Last week we discussed the benefits of a Single Premium Permanent Life Certificate (the Providence S-PLAN) in a person’s estate savings and family protection planning. We demonstrated how the cash value savings and guaranteed death benefit of such a certificate combine to produce significant tax-free and probate-free benefits for one’s descendants. We also saw how it is that a tragically untimely death produces maximum benefits at a time when they are needed most. We would now like to introduce the readers to the Legacy or Stretch Annuity IRA. Providence calls it the “S-Annuity”.

Stretch (Legacy) Annuity IRA (“S-Annuity”). Also termed “Multigenerational” or “Inherited” IRAs, Providence S-Annuities can extend IRA annuity distribution requirements to and through the lifetimes of additional successor beneficiaries (usually children or grandchildren), beyond the deaths of the original investor spouse and his or her primarily designated spouse beneficiary, that had might have assumed the IRA or an income stream from it. as his or her own.. Stated otherwise, the IRS regulations now allow the death benefits of an IRA annuity to be paid to the original annuitant-pensioner’s descendants and not simply to the spouse.

The advantage – as you will see from the illustration – is that the payout period for the IRA annuity can be stretched over the course of the life of the original pensioner, the pensioner’s spouse and yet another generation of beneficiaries. The accumulating tax on any income on the principal inside of the annuity at any given time will continue to be deferred to the time of ultimate withdrawal through a monthly pension benefit , a lump sum distribution or any appropriate withdrawal. The S-annuity account and itys tax benefits can, therefore, continue through the lifetime of the investor, his or her spouse and the investor’s descendants.

As a result of this multi-generational tax-deferral, the estate’s principal continues to produce tax deferred interest and all of the accumulated interest also earns interest. All of the dollars in an annuity account work for the entire family

The only limitation on the succession of an S-Annuity would arise if the original investor chooses to create a lifetime income stream voluntarily or, as a result of the Required Minimum Distribution rules, is forced to do so. In such a case, the periodic payment becomes the only available death benefit and will be made payable to future successors should the original investor die an untimely death.

Illustration . Dmytro, upon retiring from work at age 65, rolls his 401(k) retirement plan into a Providence S-Annuity IRA. He also purchases a $50,000.00 S-Plan life policy from Providence, paying $23,400.00 for it .He also transfers other IRA plans to the Providence S-Plan.

At age 69 – before being required to take minimum distributions -- Dmytro dies tragically. The Providence S-Plan pays his wife-beneficiary, Marusia, then 59 years old, $50,000.00. The couple’s money doubles in less than four years. Marusia invests the money into a Providence annuity. She also buys a Providence Ordinary Whole Life Policy for a face amount of $50,000.00. She appoints her and Dmyto’s daughter, Ivanka, as a beneficiary under both plans.

As is her right under the IRS rules – Marusia also assumes Dmytro’s IRA as her own. She  gets a modest job and continues to make contributions into that IRA. Marusia dies at age 69 – before being required to take minimum distributions. Ivanka gets a check for $50,000.00 from the whole life policy and also gets the proceeds from the annuity. She deposits the annuity and life insurance proceeds into her own annuity. Under the new rules, Ivanka, as the appointed beneficiary, then also receives the S-annuity IRA at age 54. Ivanka chooses to take distributions immediately and a guaranteed monthly income steam for the course of her life expectancy of 30.5 years begins.

If Ivanka dies 20 years later, having appointed her own son, Osyp, as a beneficiary, then Osyp will: (a) continue to receive benefits for the 10.5 years remaining on Ivan’s income stream under the Stretch annuity (Osyp can use the payments to offset his student loans); (b) Receives the accumulated annuity and insurance monies from his parents and grandparents; and (c) also receives the $50,000.00 proceeds from the 20-Pay Whole Life  Policy that his grandfather, Dmytro, had purchased on the life of Ivanka.

Conclusion. Combining the S-Annuity IRA, ordinary annuity investments, an S-Plan Life Policies and other Life Insurance policies, Marusia and Dmytro were able to leave a very handsome legacy to their grandson, Osyp. Consult with Providence for your family savings and protection needs.