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Your money may not be working as hard as it should. If you’ve invested in taxable financial products, you may be losing money to taxes every year, which can decrease your after-tax return. Unlike many traditional savings vehicles, you pay no current income tax on interest earned within your fixed annuity. The money you would have paid in yearly taxes stays in your annuity and continues to earn interest until it is withdrawn. 1 Not only do you earn interest on principal, but you also earn interest on money that would have otherwise gone to the IRS.
As the example below illustrates, tax deferral of an annuity helps maximize your savings. A $50,000 deposit, compounded at 3.5% annually, grows with taxes deferred. Once taxes are paid on the lump sum distribution after 20 years, the net savings would be more than the amount accumulated in a taxable investment over the same time frame.
This illustration compares tax-deferred and taxed growth of $50,000 earning an annual percentage yield of 3.5% for an individual in a 28% tax bracket.
*Accumulations in a tax-deferred plan are usually for retirement purposes and are not withdrawn in one lump sum. For comparison purposes, this illustration shows the growth after taxes are paid on a lump sum withdrawal after 20 years, given the same tax bracket. It assumes withdrawals are not made before age 59½.
A complete auto coverage plan, with money-savings benefits and roadside assistance.