Great American Life recently announced it received a Private Letter Ruling (PLR) from the IRS that changes the tax treatment of advisory fees.
The PLR was issued on August 6 and states that advisory fees may be withdrawn from a non-qualified fixed indexed annuity without creating a taxable event for the client.
In a statement, Cincinnati-based Great American Life said the PLR provides a welcome change for advisors who may have steered away from fee-based annuities in the past because of potential negative tax consequences.
Great American Life was a key player in a coalition of insurance carriers that rallied for the change. Freeman Durham, Divisional Vice President and Senior Counsel, Great American Insurance Group – Annuities, says, “We have been working with the IRS and other companies to achieve this change since 2017. Great American brought to the discussion our focus on fixed indexed annuities and helped explain to the IRS how a fee-based indexed annuity works with an advisory model to benefit the client.”
Durham continues, “It’s rewarding to see the ruling finalized and know that we’re opening up new doors for advisors and their clients.”
Overcoming the taxation hurdle is the latest milestone in Great American Life’s goal to make annuities more compatible with an advisory portfolio.
The new ruling also eliminates the 10% tax penalty that may have applied to withdrawals to pay advisory fees for clients who are not yet age 59½. It’s important to note the ruling is limited to fee-based non-qualified annuities sold by Great American Life, and the annual fee cannot exceed 1.50% of the annuity’s account value. Advisory fees withdrawn from qualified annuities are not part of the ruling, as they already receive favorable tax treatment.
“We’re always looking for ways to make annuities more accessible to registered investment advisors and the clients they serve,” says Tony Compton, Divisional Vice President of Broker/Dealer and RIA Sales for Great American Life. “From our transparent products to robust data integration and technology capabilities, we’re focused on keeping things simple. I’m proud to see Great American help pave the way for this latest breakthrough that further supports a seamless annuity experience for RIAs.”
Great American Life launched the industry’s first fee-based fixed indexed annuity in 2016. Since that time, the company has introduced multiple technology solutions to support the unique needs of RIAs, including a cutting-edge portfolio simulator and advanced electronic application system. These resources and more can be found at GreatAmericanRIA.com.