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Annuities Provide Legitimate Tax Avoidance

Posted on April 15, 2009 by bobrichards

One popular benefit of a fixed annuity would be that it is possible to let the interest in the account compound every year without paying revenue taxes. This enables your cash to possibly increase quicker as compared to fully taxed investments that pay similar, before-tax returns. Once you commence making distributions, the percentage of income that is taxable is determined by the way you plan the withdrawals. Your beneficiaries, however, may not have that mobility, and may face a huge tax bill on the inheritance. And when to get money from an annuity requires legal tax avoidance.

To help your heirs keep the cash you gained, you may want to consider buying a life insurance policy for the quantity of the estimated tax bill. You could pay the premiums your self, ask your beneficiaries to purchase the coverage to protect their long term interests, or maybe you could annuitize your annuity. In a moment, you will understand why converting an annuity to a life insurance coverage is always smart legal tax avoidance for all those who do not require the annuity for living expenses.

Assuming your annuity is not held in a tax-qualified account, such as an IRA, your heirs may have to pay revenue tax on the built-up income when you pass away. Assume that you place $250,000 in to a fixed annuity several years back, and now it's value $450,000. In case you died today, your beneficiaries would get the $450,000, and would have to pay as much $70,000 in federal income taxes on the gathered revenue (highest federal income tax rates are presently 35%). Even though by thinking ahead, the basic concept of legal tax avoidance, you can place a lot of money in the pockets of your beneficiaries. Please note : a 10% federal tax penalty may apply to withdrawals taken prior to age 59½.

Not everybody can qualify for a life insurance policy. Based on the payout from the annuity, your health along with other factors, the payout from the annuity may not cover the full premium payment on the life insurance coverage, even though rare.

Annuitizing your annuity may give you a steady revenue that you can't out-live. Part of the income will be a tax-free return of your original investment. The balance shall be taxed as normal revenue. However, the $450,000 will will no longer be available to go to your heirs. To exchange that funds, you can use the normal revenue that you will get from the annuity to help pay life insurance premiums on a $450,000 policy. After you die, your family members will receive the whole $450,000 from the life policy, free of federal revenue taxes. Effective legal tax avoidance is simply utilizing the tax rules to keep money on your pocket instead of give it to Washington.

You Pay More Taxes Than Necessary

And we guarantee your CPA has never told you The problem with paying taxes is that most people overpay. So if you are concerned about having enough in retirement, you must stop overpaying taxes. I know you think your CPA takes care of this for you. WRONG. I AM a CPA (retired) and I can tell you that 90% of CPAs do nothing more than enter your information into the little boxes on the tax return but NEVER tell you how to pay less next year. Why? Many of them simply do not know what we can show you. In ten minutes.
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About bobrichards

Bob Richards
Editor | Involved in Various Marketing Positions within the Financial Services Industry

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