How Purchasing A Policy Can Lower Tuition Costs

Nobody gets help with college costs nowadays unless they first fill out a lengthy and bothersome form known as the FAFSA (the acronym stands for Free Application for Federal Student Aid, just in case it ever pops up when you choose the Governmental Financial Assistance category on Double Jeopardy).

The information entered therein drives all consideration for aid under all Federal and many State educational programs.

Now here’s the rub

FAFSA has certain eligibility criteria that determines – based on your income and net worth – how much you should be contributing to your child’s higher education.

If the amount they determine you can pay is too high it renders you ineligible for assistance.

And therein lies the additional rub

If you are poor and haven’t paid much of the tax that supports the assistance programs, then you’ll probably get financial support.  If you are rich and paid a great deal of the tax to fund the programs, then you probably won’t get any aid – but no big deal because you’ve got enough to pay the piper anyway.

The people that get hammered are those in the middle who have paid their fair share of the tax and, in addition, have been responsible enough to save, invest, and accumulate against the day of their anticipated retirement – only to find that the net worth that their sound economic behavior has created disqualifies them for assistance.

Here is where you can help your clients

Especially those with liquid net worth considerable enough that is proscribes or prohibits assistance.

The instructions for completion of the FAFSA form direct that in reporting financial information, “Net worth means current value [of includible assets] minus debt.”  For example, a commercial building worth $300,000 with a $100,000 mortgage would add $200,000 to the net worth calculation.

But more important – when adding the value of investments the instructions state that “Investments do not include . . . the value of life insurance . . . [or] annuities . . .”

How many clients do you have with considerable amounts of net worth in low-performing assets like CDs?  And now the value of those assets are creating a roadblock to financial aid.

One simple solution to recommend is the transfer of funds to an annuity contract or an overfunded life insurance policy (they may not have adequate coverage anyway).

The timing of a purchase doesn’t appear to be an issue

In researching this strategy, calls to the FAFSA information line drew the response that an annuity or life policy was exempt so long as it was in force at the time of the completion of the FAFSA application.  Needless to say, a client should do his or her own spadework in this regard before making a decision.

Once the child is graduated or no longer in need of assistance, funds can be transferred back into the investment opportunities of choice.  From the time that inquiries into possible financial aid begin until the event of a child’s graduation is usually long enough to purchase an annuity with an acceptably short surrender charge period – especially if the 10 o’clock scholar involved is one inclined to pack four years of higher education into six.

Contact us for the best product opportunities available for clients who are prospects for this FAFSA Net Worth Minimization Strategy.

NY Regulation 187: What You Need To Know

Financial and Insurance advisors working in the state of New York have probably heard of Regulation 187 by now. And if not, here is your quick guide to everything you need to know to stay in compliance.

This new regulation applies to all financial professionals submitting new business in New York, as well as any financial professional servicing existing business that was originally issued in New York.

The amended regulation creates a “best interest” standard of care, in addition to the suitability standards already in place.

The regulation takes effect August 1st, 2019 for annuity business and will apply to new and in-force life insurance business effective February 1st, 2020.

This means financial professionals will need to adhere to the following prior to conducting business or providing policy reviews in New York, once those dates arrive for each line:

  • Complete additional Reg 187 training
  • Use updated carrier forms when submitting new or in-force transactions
  • Keep records showing case design; in force policy support, and benchmarking for each NY business transaction on how you arrived at your Best Interest recommendation for a period of 7 years

Contact us for any questions or inquiries on this regulation.

We can provide carrier acceptable Reg 187 training links, updated carrier forms and share best practices to ensure your business continues to thrive in an ever-changing regulatory environment.

5-Year MYGA Reducing To 3.70% – Lock In A Higher Rate While There’s Still Time!

FG Guarantee-Platinum® 5 rate reducing from 3.80% to 3.70% effective Monday, October 15th, 2018.

E-Apps need to be submitted by 8.00 PM EST on Sunday, October 14th, 2018, to take advantage of the 3.80% current rate.

For cash with applications, you have 10 days from the submission deadline to get the check in. And transfers are a 60-day rate hold.

Contact our Annuity Team for more information and official details.


Use Fidelity & Guaranty’s new product comparison to explain the benefits of MYGAs to clients.

How Do MYGAs Stack Up Against CDs

4% Annuities Versus 3% Bank CDs – Doing The Math

Top Bank CDs are currently at 3% for 5 years.  Fixed guaranteed annuities are now at 4% for the same 5-year duration.  The higher rate alone would be enough for most clients to make a move – but have you looked at what the power of tax deferral would do to add to this argument?

The comparison below assumes a $100,000 non-qualified deposit, with an assumed tax bracket of 35%:

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1 $100,000.00 3% $3,000.00 $1,950.00 $101,950.00
2   3% $3,058.50 $1,988.03 $103,938.03
3   3% $3,118.14 $2,026.79 $105,964.82
4   3% $3,178.94 $2,066.31 $108,031.13
5   3% $3,240.93 $2,106.61 $110,137.74
1 $100,000.00 4% $4,000.00 $4,000.00 $104,000.00
2   4% $4,160.00 $4,000.00 $108,160.00
3   4% $4,326.40 $4,000.00 $112,486.40
4   4% $4,499.46 $4,000.00 $116,985.86
5   4% $4,679.43 $4,000.00 $121,665.29

After 5 years, the client earns over 100% more in interest.

After 5 years, they can maintain the deferral by continuing in the same contract, or by transferring the assets via a 1035 exchange into another annuity which, likely, should be paying a higher rate of interest at that time.


How To Turn Tax-Deferred Money Into Tax-Free Distribution

One of the greatest threats to any client’s income or accumulation plan is an extended health care event.

With the cost of care ranging from $54K to $100K annually, a client could be forced to liquidate equities at depreciated values, tap into annuities that were earmarked for lifetime income, or destroy their legacy values.

One way we can safeguard against this potential threat, is to convert tax-deferred assets into tax-free distributions to help pay for the cost of care.

Let’s say your 60 year old client has a $100K annuity ($50K cost basis, $50K taxable gain). If they 1035 the current Annuity to a PPA approved solution, day 1 they can access a $365k tax-free pool of money that can be used for care. Even better still – if they have a Long-Term Care event down the road, that $365k pool of money grows to a guaranteed pool of $920k by average claim time of age 84.