EXAMPLE OF the TAX-DEFERRAL ADVANTAGE
Joan and John Smith have a $75,000 CD earning 3.0%. They have a taxable income of approximately $66,000/year, which puts them in the 25% marginal tax bracket for 2009. Since their $2,250 in CD interest income is fully taxable, how much would their income increase if those same funds were earning the same interest rate, but in a tax-deferred investment? Let's see!!
|
Certificate of Deposit (Taxable) |
Annuity (Tax-deferred) |
|
$2,250.00 Interest Income |
$2,250.00 Interest Income |
|
less $562.50 Income Taxes |
NO Current Income Taxes Payable |
|
= $1,687.50 Net Income After Taxes |
= $2,250.00 Net Income |
| $562.50 MORE Income, or +33.33% in 1st Year | |
|
$76,687.50 Year 1 Ending Account Balance |
$77,250.00 Year 1 Ending Account Balance |
The tax-deferred annuity provides an additional $562.50 in income, or 33.33% MORE than the currently taxable CD in just one year! Persons in higher marginal tax brackets would realize an even larger increase in their income as a result of current tax-deferral. Increases grow even more in future years, as the extra funds saved from tax-deferral continue to compound and grow. Where should your money be? Going to the government and being lost forever, or continuing to earn compounded interest for you??
Now an example with actual current rates
Joan and John Smith's $75,000 CD has matured and they have shopped the CD marketplace well, but have found (to their dismay) that the national average for 1 year CD rates now is only 1.69%, as of October 20, 2009.1 We'll again conservatively assume that they will still be in the 25% tax bracket for 2009. The Smith's need a better option and a tax-deferred, fixed annuity could be just the answer. After checking our "CURRENT RATES", the Smith's find an annuity with MetLife (A+) paying a guaranteed 2.25%. (NOTE: Even higher rates are available, if the Smith's wanted to lock-in longer term rate guarantees) The following table shows what the Smith's can accomplish:
|
Certificate of Deposit (Taxable) |
Annuity (Tax-deferred) |
$1,267.50 Interest Income @ 1.69% |
$1,687.50 Interest Income @ 2.25% |
less $316.88 Income Taxes in 25% Bracket |
NO Current Income Taxes Payable |
= $950.62 Net Income After Taxes |
= $1,687.50 Net Income |
| $736.88 MORE Income, or +177% in 1st Year | |
|
$75,950.62 Year 1 Ending Account Balance |
$76,687.50 Year 1 Ending Account Balance |
MORE THAN A 100% INCREASE IN INVESTMENT INCOME!! You really can more than double your investment income with financially secure companies and GUARANTEED RATES. If you want longer term guarantees, while still retaining liquidity of funds, simply "ladder" a number of contracts with various interest rate guarantee periods. The minimum investment in most annuity contracts is usually quite low and you can plan for a whole range of maturities, but still lock-in these outstanding rates and the advantage of current tax-deferral. Call us, today, for a personal review of your needs to determine if this strategy to increase your investment income is appropriate for you.
1 CD Rate Illustrated Found At BankRate.com. All Rates Are Subject To Change.