SMAs and Taxes

Please bear in mind that this site is NOT intended to give tax advice in any way shape or form, but we do want to share a bit of information to “get your feet” wet with secondary market annuities and how they are affected by current tax structures. The information on this page is for entertainment purposes only. ūüėČ Here’s an excellent resource page from SFA inc. that links to PDF documents on IRS regulations pertaining to structured settlements – a very impressive and comprehensive source of tax-related details:

http://www.sfainc.com/tax.aspxSFA’s library of legal, legislative and tax information on structured settlements. original article here

You can find more information on taxes and SMAs at our sponsor’s SecondaryMarketAnnuity.net website. An excerpt is included below…

http://www.secondarymarketannuity.net/about-secondary-market-annuities/sma-and-taxes/We addressed how Secondary Market Annuities are tax free awards to the original annuitant in our section on Structured Settlements.  As tax free income streams to the original annuitant, the Annuity Issuers  making the payments do not issue 1099’s to the recipients or to subsequent assignees.

Federal law and IRS guidelines outline how, in a properly structured transaction, a court order shows the  buyer as the assignee of an existing payment stream by means of qualified order. This is the court process we follow on all cases.

So while under current IRS regulations you will not receive a 1099 for the income you receive, this does not mean it’s tax-free.

The taxation of income from factored Structured Settlements is up to the taxpayer and their tax adviser to declare.  It also depends if the Secondary Market Annuity is in an IRA or not.  Generally annuities are considered ordinary income and the income vs principal is calculated using an exclusion ratio to determine (exclude) from income that amount of each payment that is return of principal. Full text here (affiliate link)

Obviously a serious discussion of taxation and how it applies to SMAs is beyond the scope of this modest website, but as a savvy investor, we invite you to learn more about secondary market annuities and whether they make sense for your portfolio. If you’re interested in more information, we recommend you sign up for a free SMA newsletter from SecondaryMarketAnnuity.net. Please see our home page for a thorough discussion of the benefits of that free newsletter.