1035 exchange
Help your clients get an edge on retirement
Investment Edge® Variable Annuity
Designed to help your clients achieve their unique goals
Lock in gains
The unique Return of Premium Death Benefit* in Investment Edge® locks in gains from your clients’ current contract.
Cut costs and losses
With our Structured Investment Option (SIO) Segments, your clients can put more money to work and gain partial downside protection.
Control taxes
With Income Edge, your clients can get more tax-free income in the early years of retirement when they may need it most.Do you have clients like these in your book of business?
With innovative features, Investment Edge® can address the complex retirement goals of many different clients, which means you can potentially expand your book of business. Here are two hypothetical clients who could benefit from a 1035 exchange.
Transferring an inherited nonqualified (NQ) annuity contract to Investment Edge® is considered a 1035 exchange, a provision in the Internal Revenue Service code allowing investors to transfer an annuity contract, tax-free, to another annuity. Equitable Financial Life Insurance Company and Equitable Distributors, LLC have consistently emphasized the importance and benefits of existing annuity contracts. However, in some cases, it may be appropriate and in the investor's best interest to replace or change an existing annuity, or to transfer some or all annuity contract values into another contract. In other cases, the disadvantages of replacing, changing or transferring a contract may outweigh the benefits of the new contract. Investors should discuss a full and complete comparison of the existing and proposed products with their financial professionals.
Investors holding a variable annuity from another company
The Return of Premium Death Benefit in our variable annuity (VA) can protect money left to loved ones against potential losses by locking in gains from the current contract.
Meet Mike
Mike believes he will have enough money for retirement, and is looking to leave a legacy behind. But he also wants the flexibility to keep his options open in case his priorities change.
Age: 63
Invested $100K in a VA 5 years ago
Now has an account value of $150K in the VA
If Mike stays where he is:
If Mike moves to Investment Edge®:
If Mike stays where he is:
And the market goes south, his account value will decrease, along with his death benefit. If it goes down enough, his death benefit will equal $100K again.
If Mike moves to Investment Edge®
He’ll reset his death benefit to $150,000, providing additional protection and helping ease uncertainty for his loved ones.
If Mike stays where he is:
He will have fewer investment options, meaning less flexibility to weather market downturns and profit from upswings.
If Mike moves to Investment Edge®:
He can diversify his portfolio among Segments and more than 100 other variable investment options (VIOs) and packaged portfolios.
If he invests in the Step Up Segment and the market is flat, he will still get the upside of the Performance Cap Rate, less the contract fee, potentially providing a greater flat market return than traditional annuities.
If Mike stays where he is:
If the market is flat, his investments won’t turn a profit.If Mike moves to Investment Edge®:
If he invests in the Step Up Segment and the market is flat, he will still get the upside of the Performance Cap Rate, less the contract fee, potentially providing a greater flat market return than traditional annuities.
If Mike stays where he is:
If he decides he wants to take income after all, income payments are typically subject to higher taxes in the early years, providing less income as retirement begins.
If Mike moves to Investment Edge®:
Investment Edge® offers an innovative distribution strategy, Income Edge, that provides him with more income in the early years of retirement.
By diversifying his portfolio in SIOs and VIOs in Investment Edge, he's able to:
- Cut costs with no portfolio-level fees for amounts invested in SIOs
- Cut losses with partial downside protection
- Control taxes with tax-efficient income distribution
Diversification does not assure profit or protect against market loss.
If the negative return is in excess of the protection level, there is a risk of substantial loss of principal because the client agrees to absorb all losses to the extent they exceed the protection provided.
Inherited NQ contract holders looking for tax-efficient payments
According to multiple studies, approximately 90% of heirs leave their parents’ advisor.1 If you’ve had a client pass away who was holding an annuity, then a 1035 exchange to Investment Edge® can help you keep those assets in your book of business by providing tax-efficient options for the beneficiaries.
Meet Carol
When Carol's mother passed away, she inherited a nonqualified (NQ) deferred annuity with gains and now wants to take control of her taxes.
Age: 68
Cost basis: $1.5M
Death benefit: $2.8M
Like most non-spousal beneficiaries, Carol has three options to choose from when receiving death benefit proceeds from an NQ deferred annuity. Each option will impact her differently.
Options:
Hypothetical scenarios:
1. Lump Sum
All gains are instantly taxed.
Carol is immediately taxed on the full $1.3M gain.
Between federal and state income tax — Carol could pay about 50% in taxes on the $1.3M gain with this option.
2. Spread or defer the taxes over 5 years
While this method can lessen Carol’s tax burden initially, she will still have to liquidate the full amount within 5 years.
There are no required scheduled payments, and Carol can take payments at any time during the 5 years. Although she has the flexibility of deferring the taxable amount for 5 years, if she continues to defer taxes and the account experiences growth, her tax liability increases and she must pay the full tax burden at the end of those 5 years.
3. NQ Stretch and Income Edge Beneficiary Advantage
Payment plan where Equitable Financial Life Insurance Company offers tax-efficient distributions versus the traditional last in, first out (LIFO) method.
By 1035’ing the $2.8M death benefit from the original carrier to our annuity contract, and utilizing the Income Edge Beneficiary Advantage feature, Carol is able to spread the tax burden over a period of her choosing, anywhere from 10 years to life expectancy.
Our Income Edge payment program allows Carol to better control taxes by receiving each payment as part principal and part gain.
The bottom line
Investment Edge® provides a wide range of clients and beneficiaries with more OPTIONS, more opportunity for PROTECTION and SAVINGS when investing, as well as more CHOICE, more FLEXIBILITY and more TAX CONTROL when distributing the annuity proceeds — and it also assists you, the financial professional, in retaining the assets by providing tax-efficient options.
We’ve provided a worksheet and guidelines to get you started.
Want to learn more about Investment Edge® or how Equitable can help grow your business? Contact us
Call: 1 (888) 517-9900
Monday 9:00 a.m.–8:00 p.m. ET
Tuesday–Friday 8:00 a.m.–8:00 p.m. ET
Or, request to have an Equitable Sales Consultant contact you.
1 ThinkAdvisor, "How Advisors Can Stop Losing Clients' Heirs as Clients," 2016.
The Investment Edge® variable annuity is a tax-deferred financial product designed to allow you to invest for growth potential and provide income for retirement or other long-term life goals. Amounts invested in annuity portfolios are subject to fluctuation and market risk, including loss of principal. There are fees and charges associated with a variable annuity contract, which include, but are not limited to, operations charges, sales and withdrawal charges and administrative fees. The withdrawal charge declines from 6% to 3% over five years for Investment Edge® Series B. Earnings are taxable as ordinary income when distributed and may be subject to an additional 10% federal tax if withdrawn before age 59½.
Investment Edge® offers Income Edge, a feature that allows you to take income on a more tax-efficient basis. Income Edge is available for no additional fee and allows investors in nonqualified contracts to elect a customized payment program. When elected, Income Edge is designed to pay out the entire account value via scheduled payments over a set period of time and a portion of each payment is a return of your cost basis and thus excludable from taxes.
This tax-free amount is calculated by dividing the remaining cost basis by the number of years in the payment period selected and will not change once calculated. After Income Edge election, withdrawals are fully taxable, and withdrawals in excess of the annual 10% free withdrawal amount will continue to be subject to a withdrawal charge if they are made during the withdrawal charge period. If the contract owner dies after Income Edge is elected, scheduled payments will continue to the beneficiary and any specified form of death benefit payout that you have selected will be invalidated. The Income Edge payment program does not represent a life-contingent annualization of the Investment Edge® contract. With a life-contingent annuitization the account value is applied to provide periodic payments for life and the Investment Edge® contract and all its benefits terminate. A combination of adverse investment performance, additional withdrawals, and contract fees may reduce the payout period selected. The amount of payments available through the Income Edge program is redetermined on an annual basis, meaning that the amount of the payment may vary each year of the payout period.
Once you begin taking payments, you may not stop the payments. You can take additional withdrawals, subject to ordinary income tax, and the contract can be fully redeemed for the then current account value net of applicable withdrawal charges. There are additional restrictions and limitations including age restrictions and the payout period being limited to specific time periods. Please see the prospectus for more information including Investment Edge® fees and charges.
If you are purchasing an annuity contract to fund an Individual Retirement Annuity (IRA) or employer-sponsored retirement plan, you should be aware that such annuities do not provide tax-deferral benefits beyond those already provided by the Internal Revenue Code. Before purchasing one of these annuities, you should consider whether its features and benefits beyond tax deferral meet your needs and goals. You may also want to consider the relative features, benefits and costs of these annuities with any other investment that you may use in connection with your retirement plan or arrangement. This content is not a complete description of all material provisions of the variable annuity contract. There are certain contract limitations and restrictions associated with an Investment Edge® contract. For costs and complete details of coverage, speak to your financial professional/insurance licensed registered representative. Certain types of contracts, features and benefits may not be available in all jurisdictions. Equitable Financial offers other variable annuity contracts with different fees, charges and features.
The Standard Segment tracks the performance of the investor's chosen index for the 1-year duration, measuring it from point to point. If the index performance is up, the investor can capture growth up to the Performance Cap Rate, less the contract fee. If the chosen benchmark index performance is negative, the Segment Buffer will absorb up to 10% of loss.
The Step Up Segment offers an upside guaranteed return that is equal to the Performance Cap Rate, less the contract fee, if the index performance is equal to or greater than zero when the Segment matures. If the chosen benchmark index performance is negative, the Segment Buffer will absorb up to 10% of loss.
Not every contract is available through the same selling broker/dealer. This is not a complete description of Investment Edge®. Annuities are subject to certain restrictions and limitations. For costs and complete details, contact a financial professional. This content was prepared to support the promotion and marketing of Equitable Financial Life Insurance Company variable annuities. Equitable Financial Life Insurance Company, its distributors and their respective representatives do not provide tax, accounting or legal advice. Any tax statements contained herein were not intended or written to be used, and cannot be used, for the purpose of avoiding U.S. federal, state or local tax penalties. Please consult your own independent advisors as to any tax, accounting or legal statements made herein.
Investment Edge® is issued by Equitable Financial Life Insurance Company (Equitable Financial), New York, NY 10104.
Co-distributed by affiliates Equitable Advisors, LLC (member FINRA, SIPC) (Equitable Financial Advisors in MI & TN) and Equitable Distributors, LLC.
Contract Form #s: ICC13IEBASE1 and ICC13IEBASE2 and any state variations
