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Variable Annuities -- What's the Tax Deferral Worth?

Source: forbes.com - Sep 10, 2014

How marvelous is tax-deferred investing! That is the selling pitch with tax-deferred annuities. Your assets expand under the protection of a tax shelter. You owe tax when you eventually pull the money out, but the shelter allows them to compound at a faster rate. Even after the tax at the end, you wind up ahead of the unsheltered investor.

Or do you? I have some numbers on what this tax deferral is worth. Unpleasant surprise: Annuities can backfire. They can raise your tax bill.

Still, the dream of beating the tax collector never dies, and it may explain why stockbrokers and insurance agents are able to sell $145 billion a year of variable annuities. “Variable” in this context (as opposed to “fixed”) means that your results depend on what happens to a portfolio you select.

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Category: General Business