Annuity Tax Deferral: Top Strategies & Tips

Hi there. Stan The Annuity Man, America's Annuity Agent licensed in all 50 states, including the one that you're sitting in. Today's topic, annuity tax deferral, some of the top strategies and tips from yours truly, who's been doing this a long time. I always tell some agents that come up to me, I say, "I got shoes older than you." I mean, good luck. But I've done this a very, very long time. Tax deferral doesn't mean tax-free, but it is a very important strategy to consider with annuities.

‌Tax Deferral

‌Now, the background on all of that tax deferral is that any gains are not taxed, but once you take the money out of the annuity, it is taxed to ordinary income levels. However, that was first developed in the 1950s, 1954, and '55, and TIAA was called TIAA-CREF. And they had what's called a Variable Annuity, which, in essence, is a bunch of mutual funds wrapped with an insurance wrapper. And it was for tax-deferred growth, but you could defer those taxes on the growth.

‌I'll give you an example of that. If you buy a CD, you have to pay taxes on the interest annually as it's given back to you, as you earn that interest. So, tax deferral is a very interesting benefit proposition when it comes to annuities. Now, there are a couple of different types of tax deferral. I'm going to cover one quickly and one I'm going to spend some time on. You can defer taxes, in other words, you can have income start at a later date.

You can defer it for a year or two years or 10 years or 20 years, and you're deferring up until the time you start taking income out. But what I really want to talk to you about is tax deferral with principal protection products. And in the Fixed Annuity world, which is what we do at The Annuity Man. We're the top agents out here in the country, and we're proud of that. We only sell contractual guarantees. We don't do hypotheticals, theoreticals, projections, unicorns chasing the butterfly. You know, "Mr. Jones if you'd done it 10 years ago it'd be this."

‌Multi-Year Guarantee Annuities

‌We don't do any of that nonsense. We're looking solely at the contractual guarantees. But tax deferral, say with a Multi-Year Guarantee Annuity, which the acronym is MYGA. Now, what is that, Stan? That is a very good question. That's the life insurance company, annuity company. Life insurance companies issue annuities. That's their version of a Certificate of Deposit. A CD protects the principal; you can lock in a guaranteed interest rate for a specific period of time as short as one year, typically up to 10 years.

‌And I always tell people, "If your time horizon is three years and out, look at MYGAs; if it's less than three years, buy CDs. And no, we don't sell CDs, but I'm trying to get you the highest contractual guarantee. CDs are three years and in, and MYGAs are three years and out, okay? If you want the highest contractual guarantee. But with a MYGA, you can go to The Annuity Man, put in your state, and put in the duration you're looking at, and you can shop that daily to see how rates change in their commodity products. You can see how things change.

‌And the reason that companies change rates, whether they're high, and then the next week you look they're lower, is a capacity issue, which is if the company has enough money coming in for that specific duration, then they're going to lower the interest rate not to attract money. Kind of makes sense. That's why we represent almost all carriers out there. But let's talk a little politics here. I don't want to get down the political well here because I don't carry the way.

‌The Green Party

‌I'm in the Green Party, which means money doesn't mean the environment. Green is money. Then you have Red and Blue and Independent, etc. But let's say that you are very concerned about getting taxed on gains and interest, and you think the person who might win will raise taxes and attack you and try to confiscate some of that money, quote, unquote, confiscate, right? Then you might think about buying a Multi-Year Guarantee Annuity that can take interest out if you want. You don't have to, but you have the option.

‌But let's say they, the party that wins, says, "Okay, we're going to tax you at this huge high percentage because you're the evil rich, and it's not fair that you have all this money. It's not fair that you're making this interest rate on this money." You can say, "Hmm, okay. Since you're going to do that, I'm just going to defer the taxes. I'm going to let it grow and compound. What's the eighth Wonder of the World? Compound interest. Let it grow and compound until my candidate of choice, the party of choice, or legislation of choice is in your favor."

‌IRA Accounts

‌Think about a Multi-Year Guarantee Annuity as opposed to a CD. We love CDs—nothing against them. Remember three years and in are CDs, three years and out are MYGAs. But with CDs, saying a non-IRA account, you must pay interest taxes—a MYGA in a non-IRA account. You can defer that interest. Now, obviously, you can hold MYGAs and IRAs and Roth IRAs, and they're taxed just like anything else inside of a traditional IRA and Roth IRAs. No, nothing's taxable. But my opinion of all Roth's is that you should have real growth, non-annuity products in a perfect world I want to live in.

‌But MYGAs could be that buffer to prevent you from getting taxed at a level you don't want to be taxed at. And remember when you take money out of a MYGAs, last and first out, gains first at ordinary income levels, but think of the MYGA strategy as a light switch. You can flip it on, you can flip it off. In other words, you could say, "Okay, your candidate wins and everything's good. You take the interest, and then the next election cycle, your candidate and the party lose." They raise taxes, whoever that is, Republican or Democrat. You just shut the light switch off and have the interest growth from that MYGA tax-deferred compounding.

‌Fixed Index Annuity

‌So, that's a thought, too. Now I have to insert here. Another Fixed Annuity is a Fixed Index Annuity. It is horrifically sold by too many agents in this country as a growth product. It is not. It's a CD product put on the planet in 1995 as an alternative to CDs. But if you look at MYGAs and you look at Index Annuities, the difference is the MYGA has a guaranteed interest rate annually and is guaranteed contractually. The Index Annuity has what's called caps and spreads and participation rates, which are levers that the annuity company uses to limit the upside.

If you've heard the sales pitch at the bad chicken dinner seminar that you get market upside with no downside and you get market participation without putting your money at risk, that's garbage, as they say in French, that's nonsense. And you have to just put in your thinking cap and say, "If it sounds too good to be true, it is."

‌We have nothing against Index Annuities. We typically use them as an efficient, cost-effective delivery system for income writer guarantees when you need income in the future. But sometimes, somebody wants to buy an Index Annuity for accumulation. We'll show them the MYGA and talk about the index. It's your money, you get to choose. We're going to give you the good and the bad of that.

‌To conclude, as only Stan The Annuity Man can, annuity tax deferral with annuity tax deferral rules are good. You can use them to your benefit regardless of what happens politically and legislatively. You can take interest out, never touch the principal, and keep rolling it. You can buy a MYGA and say, "Okay, I don't want to take the interest out because there's confiscatory tax law, and I'm just going to keep rolling and rolling it and rolling it and then roll it to another MYGA when it matures." You can do that as well.

‌I encourage you to go to The Annuity Man. Schedule a call with my team, and they can walk you through all of the details. If you're not at that stage yet and want to discover what these things are all about. I've written a book on MYGAs, a MYGAs owner's manual that you can download for free or read for free. We have hundreds of videos on MYGAs. We got a book on MYGAs. We have a live MYGA feed, 24/7, 365. You can get educated on that. If you want to learn more about Index Annuities, you will have to schedule a call because there's no way to run a commoditized quote with us, and they are a little bit complicated. I always tell people, "If you can't explain it to a nine-year-old, don't buy it." No offense to nine-year-olds. Please keep it simple out there: annuities are contracts.

‌Understand the contract before you buy it, and there's no urgency to buy. The urgency is for you to fully understand what you're buying and how it's going to fit within your portfolio. My name is Stan The Annuity Man, I'll see you next time.

Never forget to live in reality, not the dream, with annuities and contractual guarantees! You can use our calculators, get all six of my books for free, and most importantly book a call with me so we can discuss what works best for your specific situation.