What is a split annuity?
A split annuity can help you increase the after-tax earnings from other fixed-rate investments you have made, such as a certificate of deposit. Say you have a $100,000 certificate of deposit that earns 7% and that you are in the 30% income tax bracket. The CD would generate about $4,900 of after-tax income. In 10 years, you will have received $49,000 (assuming the income is spent, not saved and earning compound interest) of after-tax income and will still have $100,000 in principal. You could collect a lot more than $49,000 in after-tax income by purchasing a split annuity. The $100,000 in principal could be divided for investment purposes between a deferred annuity and an immediate annuity. If approximately $50,000 is put into an immediate annuity at 7%, it will provide $6,200 of annual after-tax income for a period of 10 years. This includes a return of principal and interest. After 10 years, the annuity will end. The other $50,000 would be invested in a single-premium deferred annui
