What is a Tax-Deferred Annuity?
A tax-Deferred Annuity is a contract you establish with an insurance company in which your money accumulates and compounds free from current income taxes.
With a Tax-Deferred Annuity You Gain Enormous Tax Control
You pay taxes only when you choose to receive payments, and then only on your earnings. When you’re ready to withdraw the accumulated funds, the insurance company will pay you a lump sum or pay you an income guaranteed for your lifetime ( or income for a specified number of years) on a tax-advantaged basis. You choose when to take the income and when to pay the taxes – but not until you choose to.
How Tax-Deferred Annuities work
Once you start your Tax-Deferred Annuity (with a single or multiple payments), there is an accumulation phase where your funds grow free of all income taxes, and then a “payout” or spending phases which you can select at any time. Your earnings are taxed only when they are withdrawn, and your original after-tax principal is returned to you tax-free.
What other advantages do Tax-Deferred Annuities offer?
A High Degree of Safety – Tax Deferred Annuities are offered exclusively by Legal Reserve insurance companies, many of which have been in business over 100 years and have billions of dollars in assets. As an added plus, you always know the financial strength of any insurance company you invest with, because the insurance industry is constantly reviewed by independently and nationally respected rating services such as Standard & Poor’s, A.M. Best Company, Moody’s, Weiss Research and others.
No Stock Market Risk – Unlike stocks, bonds, mutual funds, and other fluctuating investments, a Tax-Deferred Annuity offers you competitive, fixed yields, without stock market risk! Your Interest rate is locked in and guaranteed by the insurance company. Depending on the annuity you choose, you can select an interest rate guarantee period from one to ten years.
Equity Index Annuities – Cutting Edge investment tool – With an Equity Index Annuity, you can have the best of both worlds, have a fixed investment guaranteed against losses, but with the opportunity to participate in the gains of the stock market. Equity Index Annuities have been called the “ideal investment vehicle” for people looking to maximize their earnings, who are at the same time, averse to stock market risk. When the market goes up, the value of your account goes up. When the market goes down, your account stays put, sometimes even earning a minimum guarantee. Sounds amazing? Call us to find out more.
No Loads – Your money goes to work for you immediately with a tax-deferred annuity, and you earn interest on 100% of your money because there are no front-end loads or initial sales charges.
No 1099’s – There is no 1099 form each year during the accumulation period due to the tax-deferral growth of your earnings with an Annuity. You can avoid the enormous annual tax bite you may be currently being hit with (as much as 30-40% annually) with taxable investments.
Reduce or Eliminate Social Security Taxes – Earnings from a Tax-Deferred Annuity during accumulation don’t count in the formula to calculate taxes on Social Security Benefits (Provisional Income) as is the case with CDs, bonds and pensions. Yes, even the income from your tax-exempt municipal bonds can cause your Social Security Benefits to be taxed. And with the Social Security Benefits being taxed at 50 or 85%, this is a benefit worthy of your serious consideration.
Probate Avoidance – The Tax-Deferred Annuities bypass the probate proceedings and go directly to the named beneficiaries, without any cost or delay, making them a simplified estate planning tool.
Creditor Protection – If you get a judgment against you, any assets you own in your name (CDs, stocks, mutual funds, bonds etc.) can be attached. However, the Tax-Deferred Annuity, properly structured, can make your finances creditor proof, evidence: OJ Simpson.
How do Tax-Deferred Annuities compare to Certificates of Deposit?
Higher rates of return – Historically, Tax-Deferred Annuities have always paid about 2% higher rates than CDs. The point is magnified even more so when you take into account the fact that you pay taxes on CDs interest, whether you withdraw the interest or not. So given a Tax Deferred Annuity at any rate, you would have to get a CD earning about 3.5% higher rate than the annuity, in order to net the same return. Example, if you have a CD earning 2.5%, and you are in the 28% tax bracket, you real rate of return is 1.65%. Now if you deduct another 2% for inflation, you have a negative 0.35%. Your 2.5% CD actually guarantees you a loss.
Bank CD’s carry FDIC insurance up to $100,000. The penalties for early withdrawal never go away. Interest rates can vary wildly over time.
Annuities carry similar coverage from another Government agency, and the penalties for early withdrawal decrease over time. The Tax-Deferred Annuity offers a lot more.
When you take the time to learn a few simple things about Tax-Deferred Annuities, you’ll see how they can make a dramatic difference in your portfolio
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Annuities Division
