Using an annuity to protect against taxes
How an annuity can be instrumental in protecting your hard-earned money from the huge impact of taxes.
You've always given everything for your family’s future, and, with the right strategy, you can ensure that you will fully benefit from the money you’ve saved for retirement. With tax rates reaching their highest levels in decades,1 minimizing tax exposure and safeguarding wealth and retirement income assets is more important than ever.
An annuity can play a key role in helping to protect your savings from today’s—and tomorrow’s—taxes, as you work toward planning for a reliable income stream through retirement.
An annuity is a tax-deferred vehicle, meaning taxes on your assets within one are postponed, and only applied when the money is withdrawn. Deferring taxes within your portfolio can allow for more growth over the long term.
As with an IRA, deferred annuity withdrawals are intended to start at retirement age, but unlike IRAs, annuities are an even more flexible tax-deferred investing option, with fewer limitations. See the impact of tax-deferral on your potential investment growth with this calculator.
Income from an annuity can be quite efficient in terms of taxation. For instance, you can add a rider (for an additional cost) to have withdrawals made from both the gains and a piece of your initial principal. When you receive this kind of payout, the only portion that gets taxed is the gains.
Furthermore, transfers between subaccounts are tax-free for annuities. For mutual funds, on the other hand, transfers may result in capital gains taxes.
To help make the income from an annuity more tax-efficient, you can add a living benefit option (for an additional cost) to have withdrawals taken from the gains and your principal. When you receive this kind of payout, the only portion that gets taxed is the gains.
Tax planning is a crucial part of retirement planning—something that all too often goes unaccounted for. The impact of taxes in the future is unknown; in the face of this uncertainty, a tax diversification strategy that includes an annuity can give you the confidence that you will always have income available to you.
Take into consideration the implication of taxes on your financial future. Learn more here (PDF) or talk to your financial advisor about strategies to make the most of your money.