Why should I purchase a variable annuity?
If you are planning for retirement or other long-term goals, a variable annuity offers the earnings potential of the equity markets combined with professional money management, tax deferral, beneficiary protection and guaranteed income payments for life. Once you have made the maximum allowable contributions to your 401(k) or other tax-qualified retirement plan and your IRA, a variable annuity can be an excellent supplemental retirement investment.
Why should I purchase a fixed annuity?
Fixed annuities are an excellent option for your "safe money" because they offer a guaranteed interest rate. If you are a conservative investor who does not wish to participate in the equity markets, or if you are planning for retirement and seeking a guaranteed fixed rate product for the long term, you may also consider a fixed annuity. Its tax-deferral feature can increase the impact of the competitive fixed rate over time when compared to other fixed rate products.
Why should I purchase an immediate annuity?
Immediate annuities are an excellent option if you are seeking the security and convenience of a periodic income payment. Immediate annuities are often purchased by retired individuals who no longer work or who require additional income to supplement part-time employment.
What are the tax advantages of an immediate annuity?
A portion of each income payment from an immediate annuity is a return of the original principal and is, therefore, tax-free. Additionally, if you purchase an immediate annuity with a taxable lump sum distribution from a qualified retirement plan [i.e., 401(k)], you can spread the tax liability over a longer period of time.
How does tax deferral benefit me as an investor?
Tax deferral means that any amount earned in an annuity is not taxed until earnings are withdrawn. This means interest, dividends and capital gains can accumulate without being subject to current income taxes. Income taxes are paid on earnings when they are withdrawn and a 10% penalty may be assessed on earnings withdrawn before you reach age 59 1/2. Thus, all earnings have the opportunity to grow and earn their own income while they remain invested.
Over the long term -- as shown in our Why It is Smart to Defer Taxes example -- tax deferral can produce a significant difference in value over investments that are taxable.
Tax deferral provides a substantial advantage over time and enables you to maximize the growth of your earnings. Deferring income taxes until a later date allows your investment to work harder for you. Tax deferral also allows you to control the time you receive income and the amount of taxable income you receive.
NOTE: Neither Morgan Stanley nor any of its Financial Advisors provides legal or tax advice. Tax laws are complex and subject to change. Investors should always consult their personal attorney of tax adviser prior to implementing any tax related investment decisions.
