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Annuity or taxable account
Old 07-14-2011, 10:23 AM   #1
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Annuity or taxable account

I think I know the answer. I did find some annuities with 4% load and 0.80exp. Just want your opinions
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Old 07-14-2011, 10:43 AM   #2
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I assume that you are referring to variable annuities. When you buy an annuity, you are also funding a life insurance policy. Therefore annuities will always underperform an equivalent naked fund.

Taxable accounts, as of ths writing had a tax advantage in that you only pay capital gains versus regular income tax rates. But who knows what tax rates will be when you need to take the money out some years down the road.

So not knowing anything more, I vote for the taxable account.
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Old 07-24-2011, 03:02 PM   #3
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I'm going with a taxable account and I understand to put equities in it and I will pay a lower tax on gains ? Now as years go on and the account gets larger every year I have to pay gains ?
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Old 07-24-2011, 03:22 PM   #4
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Did you find those no-load annuities with 0.5% expense ratio from Vanguard?

Under present tax laws, one pays zero taxes on unrealized capital gains.

Under present tax laws, one pays zero taxes on unrealized gains in a variable annuity.

So they are virtually the same (note the word "capital" though). When you cash in and sell, there is a difference. You pay higher taxes on the gains from the annuity.
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Old 07-24-2011, 04:01 PM   #5
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Quote:
Originally Posted by LOL!
Did you find those no-load annuities with 0.5% expense ratio from Vanguard?

Under present tax laws, one pays zero taxes on unrealized capital gains.

Under present tax laws, one pays zero taxes on unrealized gains in a variable annuity.

So they are virtually the same (note the word "capital" though). When you cash in and sell, there is a difference. You pay higher taxes on the gains from the annuity.
I just looked at vanguard annuity it's total expense is .50 no load from what I read on it I will just have to pay long term gains after 59 1/2 This seems to make more sense then a taxable account am I missing something
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Old 07-24-2011, 04:33 PM   #6
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You are missing that the tax rate on the gains in a variable annuity could be upwards of 35%, while the gains in a taxable account could be as low as 0%. Let me ask you: Which is better 0% or 35% tax on your gains?

You may wish to take a step back and do some research on taxes. See Internal Revenue Service for help with that. Lots of folks start with Publication 17.
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Old 07-24-2011, 04:45 PM   #7
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Thanks I was doing reading and now I understand what you were saying. Now I see the big difference. Thats why I'm on this site for everyones help
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Old 07-24-2011, 05:27 PM   #8
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Now that you got that, let me say that some folks who insist on having a REIT fund and who do not have any room in their other tax-advantaged accounts for it, do not put a REIT in a taxable account. Instead, they put it in a Vanguard variable annuity. One reason is that the REIT has to pay out every year and the payouts are taxed as ordinary income if held in a taxable account.

Also if you need more bonds and do not wish to hold tax-exempt bonds AND you are going to hold the bonds for a LONG time (25 years, maybe more), then a variable annuity of a bond fund may make sense.

However, I don't see where a variable annuity holding a tax-efficient index fund like a low-expense ratio Total US Stock Market index fund or a Total Int'l Index fund will ever make any sense.
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Old 07-24-2011, 05:51 PM   #9
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Thanks I should have no problem getting equities into my taxable account. Don't have any REIT as of yet
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