3 tax planning strategies under One Big Beautiful Bill

Advisors can use the One Big Beautiful Bill Act in three types of strategies under the new tax environment that the bill creates.

Ann Hagerty, director of advanced sales at Securian Financial, gave some ways advisors can help clients take advantage of the tax-planning opportunities in OBBBA during a recent webinar by the National Association for Fixed Annuities.

One of OBBBA’s main provisions is permanently increasing the estate/give tax exemption to $15 million.

“If you have some tax-heavy assets that you’re thinking of redistributing or reallocating, this would be a good time to do that,” Hagerty said.

With the federal estate and gift tax at a historic low, “you have a huge gifting opportunity, federally.”

Advisors who want to use OBBBA as an opportunity for a client conversation can focus on nontax issues and flexibility, she said. Nontax issues include generational gifting, charitable planning, long-term care options and alternatives, and strategies for providing spousal income. Flexibility strategies include building estate plans for those needing estate equalization or those with blended families or special-needs family members, as well as repositioning inefficient assets and diversifying taxation.

Where do annuity products fit into the opportunities that OBBBA provides for advisors to work with clients? Hagerty gave three examples.

1. High-income earners who need current tax advantages.

“David” is a high-income earner who lives in New York and owes state and local taxes on top of his federal income tax. He is concerned about future taxes and longevity in retirement. He is currently maxing out his qualified plan. He also earns income from his investment portfolio in the form of stock sales, interest and dividends.

He is concerned that this additional income will prevent him from taking full advantage of OBBBA’s state and local tax deduction in the next few years. If he has more than $250,000 in total income, he will be phased out of using the SALT deduction of $40,000. The SALT deduction is reduced by 30% for any amount over $250,000.

After talking with his advisor, David decides to reposition some of his taxable assets to a nonqualified annuity before he plans to retire at age 65. This helps David to:

• Grow his assets tax-deferred.
• Diversify his tax exposure in retirement.
• Reduce or avoid market or sequence of return risk before retirement.
• Secure a guaranteed retirement income stream for life using the exclusion ratio.

2. Clients who are concerned about longevity and the future cost of care.

“Grace” runs a small company but wants to retire soon. She has always lived a healthy lifestyle but was diagnosed with breast cancer, which is now in remission. Grace is concerned about current and future taxes. She also is concerned about paying for long-term care from her taxable assets since she doesn’t qualify for long-term care insurance.

In addition to her business income, Grace earns income from her investment portfolio in the form of stock sales, interest and dividends. Grace wonders whether she is eligible for OBBBA’s additional $6,000 annual income tax deduction for taxpayers age 65 and older whose annual income is less than $75,000 for single filers.

After meeting with her advisor, Grace repositions $300,000 of her taxable assets to a nonqualified annuity with chronic illness rider. This gives her full access to an accelerated death benefit in the event of a future chronic or terminal illness.

This helps Grace to grow her assets tax-deferred, diversify her current and future tax exposure, and protect her wealth by avoiding or reducing market or sequence of return risk if she has a terminal or chronic illness event.

In Grace’s situation, her decision to reposition assets to a nonqualified annuity can provide a legacy if she never uses it for terminal or chronic illness. Upon her death, her annuity is divided between her two children. The children can select the nonqualified stretch option and take distributions over their remaining life expectancies. They also can elect a post-death1035 exchange into a different product that fits their risk profile.

3. High net worth clients who need legacy planning

Total retirement assets in the U.S. exceeded $43 trillion as of early 2025, according to the Investment Company Institute. Clients who don’t need their requirement minimum distributions from their individual retirement accounts, who have a life insurance need, who have multiple assets and sources of income with varying tax implications, and whose children are in higher tax brackets could benefit from an IRA maximization strategy.

In this strategy, the qualified plan can be rolled over into a qualified single-premium immediate annuity without an immediate tax consequence. The qualified SPIA provides a guaranteed payment and return that is then used to pay life insurance premiums. The guaranteed payment can help clients manage expected taxable distributions. The qualified SPIA may satisfy all or part of RMDs if other qualified plans are held.

 

© Entire contents copyright 2025 by InsuranceNewsNet.com Inc. All rights reserved. No part of this article may be reprinted without the expressed written consent from InsuranceNewsNet.com.