No. of Recommendations: 0
I saw on the Vanguard website that they offer variable annuities with an expense ratio of around .6. They also offer a choice of 13 different investment options, one of which is a midcap index fund. This seems like a fairly good investment opportunity (as compared with other tax deferred annuities), assuming one has maxed out his 401k and IRA options. Does anyone have any opinions on this?

Print the post Back To Top
No. of Recommendations: 0
With all other tax shelted options used, Vanguard has low cost anuities which could meet your needs.

Another option would be to invest in an index mutual fund, Total Market or S&P for example, for the long term (equal to the long term of the anuity). Planning to take out the gains as long term capital gains thereby at a lower tax rate compared to the tax rate for the gains from an annuity. The taxes on the dividend would be lower than the cost of a typical annuity (other than vanguard).

Print the post Back To Top
No. of Recommendations: 0
Vanguard built their reputation on low-cost funds (including Annuities). Odds are they are the best if you are looking for lowest cost, but I haven't done the research.

If you're looking to continue to save and give as little to Uncle Sam as possible, here are a couple options (in no particular order):

1. US Savings bonds (tax deferred, and inflation indexed in the case of I-Bonds)
2. Municiple Bonds (tax free in most cases)
3. Annuities (tax deferred, as you've discovered)
4. Tax advantaged funds...usually municiple bond funds
5. Investing in individual, non-dividend paying, stocks (long term capital gains taxes are cheaper than 'ordinary income' tax in most cases).
6. Realestate (I'm not an expert in this area, but my co-worker is constantly harping on the tax advantages of owning rental property).

-Warthog


Print the post Back To Top
No. of Recommendations: 1
Adam5045 wrote:
I saw on the Vanguard website that they offer variable annuities with an expense ratio of around .6. They also offer a choice of 13 different investment options, one of which is a midcap index fund. This seems like a fairly good investment opportunity (as compared with other tax deferred annuities), assuming one has maxed out his 401k and IRA options. Does anyone have any opinions on this?

I would wait until we see what happens concerning the Bush tax cuts. If dividends become tax-free, and your money is inside a tax-deferred account, then any dividends that you received will be taxed at your marginal rate when you take the money out. In fact, any capital gains that you take out will also be taxed at your marginal rates, so you lose on both tax advantages by purchasing an annuity. Note that this will also be true of 401(k)s and Regular IRAs if dividends become tax-free.

If dividends become tax-free, it may be more profitable to buy one or more low cost no-load funds, reinvest dividends, and hold for the long term. If dividend income is tax-free, you won't pay any taxes until you sell shares. Then, you will pay long term capital gains at the max rate of 20%. In addition, this approach has the big advantage that if you need your money, you can get it without penalties at any age.

Russ
Print the post Back To Top