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Variable annuities offer tax deferral on assets

Posted online

by James K. Louderbaugh

for the Business Journal

Is an annuity for you?

Ask yourself these questions:

?Have I reached the maximum contribution level with my IRA, 401(k) or other qualified plan?

?Are any of my investments earmarked for retirement generating annual 1099 income?

?Am I currently reinvesting my dividends?

Think back over the years since you've been investing for your retirement. After you've reached the maximum allowable contributions to your IRA and company-sponsored 401(k) plan, consider your other investments and all the taxes you have to pay on long-term capital gains and dividends.

Imagine if you had that money working for you all along especially given the stock market's performance over the last several years.*

With the additional growth you may have realized, it's no wonder that variable annuities have become a popular alternative to taxable savings plans.

How they work.

Variable annuities offer you the ability to accumulate assets for retirement and defer taxes on those assets until the money is withdrawn typically after retirement when you are likely to find yourself in a lower tax bracket.

Unlike qualified retirement plans or IRAs, there is no annual contribution limit to a variable annuity and no mandatory date to begin distributions.

That means you can defer a greater amount of investment earnings from current taxes.

Variable annuities provide you with access to a diversified group of professionally managed portfolios.

You have the flexibility to allocate your money among one or more of these portfolios comprising stocks, bonds and international and/or U.S. government securities.

Each portfolio has a specific objective and is managed by an investment professional or team of investment professionals with specific experience in different areas of the market.

Tax-deferred compounding makes the difference.

Not only are the assets you invest working for you, but the earnings on those assets that remain in the annuity money that would have ordinarily been paid out in taxes are also working for you. You may be able to achieve your long-term goals more quickly.

For more information on variable annuities, consult with your financial advisor.

*Past performance is not an indication of mature results.

Withdrawals may be subject to a 10 percent federal penalty tax if made before age 59-1/2.

(James K. Louderbaugh is vice president for invesments for SmithBarney in Springfield.)

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