Ohio National and Constellation

[Allen Trent]

if you are a RIA, you can 1035 the cash value in to no surrender fee deferred annuities and collect your AUM fee

How would that help the client by moving their once fully taxable qualified money that they rolled to an IRA, then paid tax to put it in a WL for beneficial tax reasons to then 1035 exchange it to one of the worst taxed products when you die. I can see if you are saying “for those clients that need to use the funds for guaranteed lifetime income”. But for those that don’t need it, a NQ annuity can be one of the worst choices compared to a paid up life policy or an after tax bond/equities account that currently gets a step up in basis at death

 

[walthamny]

How would that help the client by moving their once fully taxable qualified money that they rolled to an IRA, then paid tax to put it in a WL for beneficial tax reasons to then 1035 exchange it to one of the worst taxed products when you die. I can see if you are saying “for those clients that need to use the funds for guaranteed lifetime income”. But for those that don’t need it, a NQ annuity can be one of the worst choices compared to a paid up life policy or an after tax bond/equities account that currently gets a step up in basis at death

Allen, I have never asked someone to cash in their qualified money and put it into Whole life. I have only told folks to stop contributing over their 401k match and put that additional money into a 10 pay or Pmax policy.

Now my comments were general. If someone is in their 70's and has a Pmax policy drawing income, it will unlikely make sense to change that even when eventually the dividends are cut. However for folks in their 40's and 50's, who have a ONL whole life policy one option is to 1035 whatever cash value into a no surrender charge deferred annuity and collect the management fee. It is not the only option, you can also reduce the face value and try to make the whole life policy work in anticipation of lower dividends. And I am pretty sure others will 1035 the amounts into IUL with other carriers with ever exciting new benchmarks and index crediting strategies.

 

[DHK]

Apparently, I'm told that OneAmerica has a SPWL where loans are not taxed as coming from a MEC? I haven't looked at the product or details, but that could be another answer for older policies?

 

[scagnt83]

Apparently, I'm told that OneAmerica has a SPWL where loans are not taxed as coming from a MEC? I haven't looked at the product or details, but that could be another answer for older policies?

Its just a PDA account that does a 5 or 7 pay for you. (I think)

You can do the same with pretty much any WL or IUL. PDA a single premium on a 5 or 7 pay policy.

 

[Allen Trent]

Apparently, I'm told that OneAmerica has a SPWL where loans are not taxed as coming from a MEC? I haven't looked at the product or details, but that could be another answer for older policies?

that would be a great product. But unless there is some special loophole they are utilizing by calling the loan something that is exempt from the regs, they might just not be reporting on 1099 as required. Could it possibly be their single premium LTC/Life policy & checks distributed via LTC claim are not taxable

Could be also that a rep for OneAmerica may not know for certain how it exactly works & believes it to be non-taxable. have seen that with agents I work with that apply knowledge of non-MEC to MEC via confusion. maybe lost in translation

I would want something in writing from the tax department of the Life Company before I said something to a client that possibly contradicts the MEC disclosure form they sign. The item below is how many MEC disclosure forms I have seen spell it out. This example even lets them know if they own 2 MECs the special Serial Annuity tax rules may apply in that you have to exhaust the gains of multiple contracts before you can get into the tax free basis--I believe this only applies when 2 are bought in same year from same company

 

[Allen Trent]

Its just a PDA account that does a 5 or 7 pay for you. (I think)

You can do the same with pretty much any WL or IUL. PDA a single premium on a 5 or 7 pay policy.

Yes & ironically you receive a 1099 each year for the interest credited on the PDA because it is merely a bank account holding the money in the PDA until the life policy can receive the funds without being a MEC.

Would be interesting that it would still be called a Single Premium product as the premiums are still received in multiple transactions, but I get the premise of it feeling like a Single payment by the client.

Lots of agents forget to mention the 1099 that gets sent until the PDA is depleted

 

[DHK]

Agreed, and I haven't looked up the specs of what was mentioned. I do have a friend of mine who was a LEAP trainer for OneAmerica and I'll pick his brain this week about them.

So far, I'm just leaning towards Penn Mutual. Even if Penn Mutual was acquired by a similar company, they have that overloan protection rider on their WL... so that's attractive to me.

 

[Tahoe Ray]

Lots of agents forget to mention the 1099 that gets sent until the PDA is depleted

I'm pretty sure that Guardian discounts required premiums for clients that utilize their PDA account to specifically avoid this issue.

I may be mistaken but that's how I recall it working.

 

[ATM]

Agreed, and I haven't looked up the specs of what was mentioned. I do have a friend of mine who was a LEAP trainer for OneAmerica and I'll pick his brain this week about them.

So far, I'm just leaning towards Penn Mutual. Even if Penn Mutual was acquired by a similar company, they have that overloan protection rider on their WL... so that's attractive to me.

Midland doesn't do WL but it has overloan, like most carriers and a unique endorsement called the Protected Flexibility Benefit, which turns a non-guaranteed IUL into a fully guaranteed no lapse policy. Have to be age 65 or older and had for 15 years, which ever comes later.

Basically, you can guarantee a minimum face amount, like 25K and have all the rest of the cash values available for tax free distributions, or guarantee the full face amount, and have less available for tax free cash or any amount in between.

For anyone worried about lapse if they make it 15yrs and 65+ I think it's a hell of an answer.

 

[ATM]

Its too bad that Ohio National is deMutualizing!

It was either that or cease to exist.

The Mutual company model has one great flaw. There is no way to raise capital. To raise capital they have to sell more business but selling new business is a drain on capital in the near term.

Catch 22.