Experts Highlight the Tax Benefits of Annuities
New York Times -- May 10,2013
While the main goal of an annuity is to provide you with a steady income stream in your retirement, financial experts are starting to highlight the annuity tax benefits these products can provide.
When you purchase an annuity the money grows taxed-deferred which can be a big benefit as many of the favorable tax strategies available are currently under review. Eventually, the money is taxed as ordinary income when you start receiving regular payments from the annuity.
With certain types of annuities (particularly so-called "variable" annuities) fees can eat in to your return and tax benefits when you add options such as guaranteed minimum payout. Surrender fees, which kick in if you take the money out in the first five to 10 years, can also reduce tax benefits.
No Frills Annuities Have Low Fees
Buying low-fee stripped down annuities is another great tax deferral strategy. These annuities offer no extras and charge low management fees which helps preserve the tax benefits.
A study by Jefferson National Life Insurance Company looked at a variety of assets that were held in tax-deferred accounts and examined at what point the fees charged by these products started to negate the benefits of the tax deferral. They discovered that when the management fees of an annuity go over 1 percent the tax deferment benefits start to fade.
Being unable to access the money in an annuity is a common fear but it tends to be overblown according Jefferson National. As long as you can leave the money in a low fee account for 10 years the amount you have after taxes and penalties would be about equal to the amount you would have if it were invested in a taxable account.
Purchasing an annuity can be excellent way to provide you with tax deferred income stream in your retirement years.
SOURCE: New York Times
Deferred Annuity table
|Company / Product||Rate||Yrs.|
|Sentinel Security LifePersonal Choice Annuity 10||3.25%||10|
|Liberty Bankers LifeBankers Elite 9||3.00%||9|
|Oxford LifeMulti-Select 8||2.85%||8|
|Sentinel Security LifePersonal Choice Annuity 7||3.20%||7|
|Sentinel Security LifePersonal Choice Annuity 5||3.15%||5|
This is a table illustrating today's top interest rates for deferred annuities. The table lists the name of the insurance company, annual effective yield, and the number of years for which the yields are guaranteed. To learn more about deferred annuities click any line in the chart or call 800-872-6684 for quick answers.