L&HMImedium
A Michigan small employer wants to fund a SIMPLE IRA program with annuity contracts. Under MI's annuity rule, the producer's suitability/best-interest analysis must consider that SIMPLE IRA contributions are:
ATax-free at distribution like a Roth
BSubject to the same 10% federal early-withdrawal penalty as non-qualified annuities, regardless of age
Already tax-deferred, so an annuity adds no incremental tax shelter
DExempt from any best-interest analysis because they are employer-sponsored
Why this is the answer
Placing an annuity inside a qualified vehicle (IRA, Roth, SEP, SIMPLE) is permitted but the contract's tax-deferral feature is duplicative. The MI best-interest rule requires the producer to identify and document a non-tax rationale — guaranteed income, death benefit, lifetime withdrawal rider — before recommending it.
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