by John Darer® CLU ChFC MSSC RSP CLTC
Generally a portion of the income received from structured settlement payment rights is taxable if acquired in the secondary market or tertiary market by an investor.
By contrast, structured settlement payments are income tax free to those who receive them by suit or agreement, as payment of damages for physical injury, physical sickness, workers compensation or wrongful death. [see IRC 104(a)(1) and IRC 104(a)(2)] and IRC 130]
Structured settlement payments that are received as damages as part of the settlement of claims or lawsuits where they represent taxable damages, represent taxable income in the tax year received. The payee gets the benefit of tax deferral on the structured settlement funding amount, representing a potentially significant value.
An investor can purchase structured settlement payment rights through intermediaries. Interest is taxable as ordinary income. The investor is not receiving the structured settlement payment rights as damages and therefore is not entitled to a tax exclusion.
Purchasers of structured settlement payment rights may choose to acquire structured settlement payment rights through IRAs, Roth IRAs or other qualified retirement plans to mitigate this issue.
Some people purchase structured settlement payment rights through retirement plans to help mitigate the taxation of interest. For example, purchase of such rights via a Roth IRA may have certain advantages if held the required length of time for there to be no tax.
Disclaimer: The information in this p0st should not be used in any actual transaction without the advice and guidance of a professional tax adviser who is familiar with all the relevant facts.
Although the information contained here is presented in good faith and believed to be correct, it is general in nature and is not intended as tax advice. Furthermore, the information contained herein may not be applicable to or suitable for the individuals' specific circumstances or needs and may require consideration of other matters.