by John Darer CLU ChFC MSSC CeFT RSP CLTC
Tax-Free Structured Settlement Annuity | No Such Thing
John Darer reviews the term “Tax Free Structured Settlement Annuity”, which you may encounter on the Internet. Be mindful that there is no such thing as a Tax Free Structured Settlement Annuity.
Don’t worry annuitants, there IS a tax exemption, but not exactly the way it’s being presented in many cases by competent settlement practitioners and reputable settlement companies that should know better. Please read on for clarification of what is tax-free.
Examples:
- One settlement planner’s website says “Structured settlement annuities are not taxable — they’re completely tax–exempt”
- Another settlement planner’s website says “Tax-free Income: 100% of structured settlement annuity is tax-free – including the settlement award, principal, ongoing payments and interest earned”.
- “a tax-free structured settlement annuity to meet medical and living expenses, or other financial planning tactics”.
- “A tax-free structured settlement annuity qualifies for special tax treatment under IRC §§104(a)(2) and 130(c)”
- “A claimant cannot accept a cash settlement and then purchase an income tax-free structured settlement annuity on his/her own”
- The best time to start preparing for your financial future is right now. Consider the many advantages of a Tax-Free Structured Settlement Annuity.*”
- ” I work with the Tax Free Structured Settlement Annuity Product and Various Trust products”
The key lies in understanding what damages the structured settlement payments represent
While some of the incorrect statements by some settlement planners may seem plausible, it is the nature of damages that the structured settlement payments represent that is a critical factor, not the structured settlement annuity contract itself.
Consider the tax code sections referenced in every structured settlement agreement and qualified assignment. The term “annuity” is absent from IRC Sections 104(a)(2) and IRC 130(c)
“Annuity” appears in IRC 130(d), which provides the requirements an annuity must meet to qualify as a qualified funding asset, including the requirements that (i) the periods of the payments under the annuity contract are reasonably related to the periodic payments under the qualified
assignment, and (ii) the amount of any such payment under the contract does not
exceed the periodic payment to which it relates.
Furthermore, a structured settlement annuity is a versatile insurance contract that can be used for a variety of applications, including structured settlements being used as a funding vehicle for settlements involving periodic payment of taxable damages and structured installment sales.
I encourage my industry colleagues to take greater responsibility, hopefully with the recognition that inaccurate statements end up getting parroted or cited by others.
See my comprehensive write up on Settlement News Network
What’s a “Tax-Free Structured Settlement Annuity”? (4structures.com)
Please note that other factors may apply such as avoiding constructive receipt.
Constructive Receipt is Game Over for Structured Settlements (4structures.com)
Last updated December 24, 2025