A Private Placement Variable Annuity (PPVA) is for affluent individuals and families who are interested in making tax-inefficient investments in a tax-efficient environment. PPVA is most often viewed as a wealth management structure and a savings tool to allow a contract holder to reduce taxation on funds earmarked for the future.
By investing in asset classes that typically result in mostly short-term capital gains and ordinary income tax treatment, a PPVA contract holder can defer taxation until the investments underlying the PPVA are accessed as annuity income in the future.
Like a MEC life insurance contract, distributions from an annuity before the owner is age 59 ½ faces a federal 10% excise tax.1 Beyond this age, when distributions are made, only the earnings are taxed at ordinary income tax rates.
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[1] IRC §72(q)
