Because of their special status as insurance products, market linked annuities and cash value life policies, also called indexed policies, enjoy a number of tax advantages. These can be used to compound market linked earnings tax free and to pay them out at retirement at a preferred tax rate.
Tax sheltering a market linked account offers Triple Earnings:
- Earnings on the original principal.
- Earnings on interest previously earned.
- Earnings on the taxes avoided and kept in the account.
This triple bump grows the account faster, creating a bigger retirement nest egg. You not only get to compound interest that would have been taxed away, but you also lower your overall personal tax bracket, because you isolate the income from retirement assets from personal earned income. After retirement this same segregation of funds, prevents interest accumulations from triggering income taxes on your social security benefits. The accompanying chart displays the results of $10,000 placed in a bank CD with $10,000 deposited in an annuity account, both earning 6% annual interest. The calculations assume a tax bracket of 28%.
The longer the accumulation period the greater the effect of the compounded tax savings.In addition to tax sheltered growth, market linked insurance accounts have tax favored retirement payout options.
Life insurance owners can elect a series of policy loans that are not considered a taxable distributions. The interest on these loans is washed against internal policy earnings and are eventually fully offset by tax free death benefits.
Life insurance owners have an additional income option. They can elect to take loans against the policy and still participate in market linking. This provide a kind of interest versus the stock market leverage, that can sustain much higher retirement income levels.
Ask one of our experts for additional details or click here to read more..