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Variable Annuity Tax Benefits


Tax efficiency is becoming more important than ever and a new low-cost variable annuity product just may be the way to get your clients the best tax savings, according to Investment Advisor’s Joyce Hanson.  In her article “Jefferson National White Paper Says Variable Annuities Offer ‘Tax-Efficient Frontier’,” Hanson summarizes Jefferson National Life Insurance Company’s recent white paper by David Lau.  Taxes are rising and markets are still less than stable.  The white paper, entitled “The Tax-Efficient Frontier,” says that this new variable annuity category is a good way to help clients lessen the risk they take on.

While some asset classes get great benefits from the concept of tax deferral, other actually do not.  The after tax returns that clients see with this new variable annuity can be 100 basis points above what they would have been with a different variable annuity.  It combines the principal of asset location with the asset allocation, allowing higher returns without added risk.  Tax rates have been low in recent years so advisors have not been too concerned with taxes.  But as they rise, more people will become well aware of the impact taxes have on both their tax-deferred and taxable investments.

These new low-cost no-load variable annuities give clients the ability to invest more money tax-deferred.  They are an improvement from variable annuities of the past with high surrender fees that caused more investors to compare equity linked CDs and other investment products.  To optimize Lau’s tax-efficient frontier, investors with a lot of money need more tax-deferral than they can contribute to 401k’s and IRAs.  This new variable annuity product allows investors to put more tax-deferred money away that can be accessed in retirement with a continuous stream of income or a lump sum payment.

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