TAX ADVANTAGES
4
Contain your tax costs AS WITH ALL ANNUITIES, IN A FIXED ANNUITY, INTEREST EARNINGS RISE FREE FROM CURRENT TAXATION UNTIL YOU TAKE A DISTRIBUTION. In a taxable vehicle, you could potentially pay taxes on your earnings each year. Taxes you pay on earnings such as interest, capital gains, and dividends can erode the value of your retirement savings. In a tax-deferred* annuity, interest earnings are free of taxes until withdrawn. That means all of your money is working for you—not just the portion left after taxes. Until you begin to take withdrawals, tax-deferred interest accumulation can have a significant impact on the growth of your savings over time: • Interest earned on a fixed annuity is not subject to taxation until you withdraw it. • Watch the full value of interest payments add up until you decide to take a distribution. • You’ll owe ordinary income taxes based on your tax bracket at the time of withdrawal or surrender of the contract.
Tax deferral accelerates growth
Consider this hypothetical example comparing currently taxable growth vs. tax-deferred growth of $100,000, assuming a 4.5% annual rate of return and 40% tax rate over 30 years. Even if a lump-sum withdrawal is taken at the end of the 30-year period, the $100,000 still earns more than it would without tax deferral.
Tax-deferred Tax-deferred—assumes 100% taxable withdrawal at end of term Currently taxed—taxes paid annually
$374,532
$264,719 $222,389
$100,000
1
5
10
15
20
25
30 years
* Tax deferral offers no additional value if an annuity is used to fund a qualified plan, such as a 401(k) or IRA. It also may not be available if the annuity is owned by a legal entity such as a corporation or certain types of trusts. This example assumes a single, hypothetical contribution of nonqualified $100,000, a 4.5% annual return and a 40% tax rate. The after-tax amount available is in the form of lump sum distribution after the deduction of federal taxes at a 40% tax rate. (The actual tax results of any distribution will depend on an individual’s personal tax circumstances.) This hypothetical example illustrates tax deferral and does not represent the past or future performance of any particular product. Lower maximum tax rates on capital gains and dividends would make the investment return for the taxable investment more favorable, thereby reducing the difference in performance between the accounts shown. Changes in tax rates and tax treatment of investment earnings may impact the comparison shown. Investors should consider their individual investment time horizon and income tax brackets, both current and anticipated, when making an investment decision, as these may further impact the results of the comparison.
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