Monday, December 17, 2007

An Almost Near Perfect Account

Ready to Beat CD Rates? Try Annuities!
Long considered a CD alternative, annuities have become very popular today. Paying higher rates than CD's and deferring taxes, many people on a fixed income find annuities are a better option than tying up money in CD's or letting it warehouse in a money market account… Like a CD, you can place lump sums of money in annuities. You must leave the money in the annuity for a period of years, usually between 2 and 5 years. The longer you leave the money in, the higher your interest rate will be. Depending on the annuity purchased, a yearly amount is allowed to be withdrawn without a penalty. This amount is usually around 10%.
Is an Annuity Right for me?
In the past, annuities were considered investments only for people nearing retirement. But today, annuities can be smart investments for people of all ages. Remember, an annuity can be invested in a variety of different investment instruments, offering everything from modest to fast capital growth alternatives. The following are good uses for annuities:

  1. You want to make your long-term savings grow faster without current taxation.
  2. You need to save more for retirement, but you have "maxed out" your IRA and 401(k) or 403(b).
  3. You need to roll over (reinvest) existing tax-deferred savings, like pension plans.
  4. You need to guarantee yourself an income for the rest of your life.
  5. You need to guarantee yourself an income for the rest of your life and your spouse’s life.
  6. For purchasers of a special type of annuity called an Equity Index Annuity, You want to protect your "principal" with a guaranteed rate of return while investing in the equity
  7. You need a higher interest-rate alternative to Certificates of Deposits(CD's) and Money Market Funds.

Beyond tax advantages, there are important reasons to invest in an annuity, especially when you consider the limitations of other types of investments. Annuities can provide:

  • Guaranteed income. An annuity can provide you with a guaranteed lifetime income, regardless of how long you live. No other investment instrument can provide this guarantee.
  • Unlimited contributions. Unlike other tax-advantaged investments, such as IRAs, you can contribute an unlimited amount of money to an annuity during the year, whether in periodic installments or a lump sum. Individual carriers may place a ceiling on the total amount you may put into an annuity without approval.
  • Bonus rates. Some annuities award investors with bonuses -- extra interest that further increases your investment -- at the end of your annuity's first year. The bonus increases the annuity's principal on which future interest will be calculated in subsequent years, thus providing a substantial boost to the ultimate value of an annuity fund.
  • No risk of loss ("fixed" annuities). Unlike other forms of stock or fund investments, annuities that are invested in mutual funds or are tied to the stock market performance may include minimum guarantees to limit the amount of investment risk.
  • No-penalty annual withdrawals. Most annuities have a provision that allows you to withdraw a certain amount per year penalty free.
  • No-penalty rollovers. Company pension or profit-sharing plan payouts may be reinvested without incurring current taxes or penalties.
  • No probate in case of death, as long as you specify beneficiaries. Which means your family will find it easier and less costly to obtain the value of the annuity.
  • No initial sales charges ("no load") or annual fees. Annuities are generally no-load, no-fee investments, which means more in your pocket. Compared to other investments invested where some money is used to pay an initial or annual charge.
  • Shelter investment earnings. Retired people can use annuities to shelter investment earnings that would otherwise lead to taxation of Social Security benefits.

There are no "Perfect Accounts", but an Annuity can be near "perfect" for the right person! For additional information and a free computer printout please go to

Four Strategies to Help You Reduce Federal Estate and Gift Taxes

Federal transfer taxes can dramatically reduce the value of your hard-earned assets — and the value of your beneficiaries’ inheritance. When you add potential state inheritance taxes and other administrative expenses, your legacy shrinks further.
Even if the numbers do not appear large now, when you look to the future and calculate your estate growing at a conservative rate, the liability can be substantial.You can control your estate and effectively maximize your legacy with active planning and smart choices. Here are four strategies that may help to reduce the potential federal transfer tax obligations, allowing you to pass along more of what you’ve earned to your beneficiaries.

  1. Annual GivingMake annual gifts up to $12,000 ($24,000 if your spouse consents) to each of your children, grandchildren or their heirs.
  2. Family Limited PartnershipReduce the value of your assets and leverage your gifting dollars by transferring some of your assets to a Family Limited Partnership and gift portions of your limited partnership interest to your heirs at a discount.
  3. Special TrustsUse special trusts for making deferred gifts of assets such as a Personal Residence Trust or Grantor Retained Annuity.
  4. Generation-Skipping Transfer TrustProtect $1,110,0002 from federal estate taxes for your children and grandchildren ($2,220,0002 with your spouse’s consent) by setting up a Generation-Skipping Transfer Trust.

To learn more about any of these four approaches and how they might fit into your overall financial strategy, contact your Legal Financial Professional for more detail. This article is not a substitute for legal advice.