Q: My neighbor went to a retirement planning seminar and talks about a new concept called "split annuities." Are split annuities tax-deferred like regular annuities? J.Z., Mayo, Fla.
A: A split annuity is essentially an old idea in a new wrapper. It combines two annuities: an immediate annuity that starts paying a specified income over a set time period and a deferred annuity that earns interest for a set period of time. The portion of immediate annuity payments consisting of earnings is immediately taxable. (Part of each payment represents a tax-free return of capital and part is taxable as ordinary income.) With the deferred annuity portion, the earnings included in payments are taxed when received. Note: One potential drawback is that the payments are taxed at ordinary income rates (up to 35 percent) as opposed to capital gains and dividends (at a maximum 15 percent).