What Clients Really Ask Accountants About Annuities

Many clients want to know how to use an annuity to defer income until they may be in a lower, post-retirement tax bracket.

Some clients earn enough to face the 3.8% federal net investment income tax, which applies to individuals with $200,000 in modified adjusted gross income and couples with $250,000 in MAGI. For those clients, buying annuities is a way to structure their income in such a way that they avoid the NIIT.

In theory, clients could be asking Miller about ways to use annuities to make themselves eligible for New York state Medicaid nursing home benefits. In reality, few clients ask him about that.

He is expecting the Federal Reserve Board to try to push interest rates lower in the coming year. If rates start falling, he anticipates a new round of questions about using fixed annuities to cope with falling interest rates.

"Securing a fixed annuity with relatively high rates while the market rate lowers is an attractive feature for taxpayers," Miller said.

Credit: Sean Locke Photography/Shutterstock