The
past few articles have reviewed annuity basics, types of annuities, payout options,
and expenses. In this article we conclude our review of annuities with an overview
of the reasons The Henssler Financial Group recommends that investors avoid most
annuities.
Never
buy an annuity inside an IRA
Some investors are given advice to purchase
an annuity product inside an IRA. There is no reason or justification to do this.
IRAs are already tax-deferred, making the tax-deferral feature of the annuity
worthless inside the IRA. Because IRA funds are generally invested for long periods
of time, the "guarantee" that you will receive at least your initial
investment back becomes less valuable as well, since over time, the equity markets
are more and more likely to produce a positive return. The extra layers of expenses,
fees and restrictions are three more reasons that you should never purchase an
annuity inside an IRA.
Choose
a taxable stock portfolio over an annuity with non-retirement plan money.
Even though annuities appear to be a good, tax-deferred way to accumulate
assets for retirement, The Henssler Financial Group recommends that you avoid
them, even outside of IRA accounts. The exceptionally high costs associated with
annuities usually do not make them a worthwhile investment. The benefits of tax-deferral
may not be worth the costs in the long run, since withdrawals will be taxed at
regular income tax rates, instead of lower capital gain rates. The additional
expenses of an annuity finalize our position: avoid them.
The
Henssler Financial Group recommends instead that you maximize contributions to
all qualified retirement plans (maximize to receive an employer match, if eligible),
Roth IRAs, and then invest any additional funds to a brokerage account or possibly
an IRA if you receive a tax deduction for your contributions. With the change
in the tax rates, if you do not receive a deduction for your contributions, they
may not be as beneficial as before. You should check with your financial advisor.
Contributions to these retirement accounts may be tax deductible, in 401(k)s,
etc., you may have more investment choices, and in an IRA you can invest in anything
you want, instead of the limited choices in an annuity. By investing your funds
outside of an annuity, you are not subject to the limited investment options in
the annuity, but are instead free to buy or sell what you want, when you want.
Depending on the amount
of assets you have and when you will need the money from the portfolio, you can
choose to invest in high-quality common stock, tax-efficient mutual funds, or
fixed-income investments. You cannot control the taxes and fees charged when you
withdraw from an annuity. However, by investing outside of an annuity in common
stocks, you determine when gains are taken when YOU decide to sell. You even have
the option of offsetting gains by taking losses, thereby reducing your taxes.
You also may choose low (or high) dividend or income producing stocks based on
your needs. Although you cannot control the capital gains distributions in mutual
funds, you can choose to invest in a tax-efficient fund to minimize capital gains
exposure. You certainly have options available to create your own tax-efficient
portfolio, without incurring all of the additional expenses associated with annuities.
Finally,
if you need insurance, just buy the type of insurance needed. This leaves you
free to invest your money somewhere else.
If
you still wish to invest in an annuity, you should always consult your tax-advisor
first. For more information on annuities, you can visit www.annuity.com You may also contact The Henssler Financial Group at 770-429-9166 or comments@henssler.com.
All material presented is compiled from sources believed to be reliable and current, but accuracy cannot be guaranteed. The contents are intended for general information purposes only. Information provided should not be the sole basis in making any decisions and is not intended to replace the advice of a qualified professional, such as a tax consultant, insurance adviser or attorney. Although this material is designed to provide accurate and authoritative information with respect to the subject matter, it may not apply in all situations. Readers are urged to consult with their adviser concerning specific situations and questions. This is not to be construed as an offer to buy or sell any financial instruments. It is not our intention to state, indicate or imply in any manner that current or past results are indicative of future profitability or expectations. As with all investments, there are associated inherent risks. Please obtain and review all financial material carefully before investing. Henssler
is not licensed to offer or sell insurance products and this overview is not to
be construed as an offer to purchase any insurance products.
