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Wealth Accumulation

When people think of variable annuities they often think about guarantees and income. But a low-cost VA can provide additional tax deferral that can increase performance potential by as much as 200bps.

Commission-Free solutions can help
Asset location

Some asset classes benefit from tax deferral more than others. Investing fixed income, funds with high turnover or alternatives in a tax deferred vehicle can maximize the impact of tax deferral.

Tax deferred vehicles

The average cost of a commissioned VA is 135 bps, which eviscerates the value of tax deferral. With a Commission-Free VA costing 20-30 bps, clients can reap the benefits of tax deferred growth.

The power of Investment-Only VAs

A key to getting the benefits of tax deferral is keeping costs low. The lowest priced products are typically IOVAs. They offer more investment options and more ways for advisors to manage assets.

Wealth Accumulation Products

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Type Summary
Variable Universal Life Insurance

Variable Universal Life is a permanent life insurance policy where the cash value is invested in funds or fixed accounts providing opportunity for growth. Its structure allows for flexible premium payments and an adjustable death benefit, which can be impacted by the investment performance of the cash value. Because of its variable...

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Why would I use an annuity for tax deferred investing?

Ordinarily, you would not, as commission-based annuities cost too much and effectively nullify that value of tax deferral. However, low-cost, commission-free annuities are priced to enable clients to reap the value of tax deferral. For high income earners that max out their 401(k)s and IRAs, the value of tax deferral can add between 100bps and 200bps in yield to their portfolio.

What asset classes benefit most from tax deferral?

Asset classes that are income generating, such as bonds, REITs, MLPs and dividend yields stocks benefit most by deferring tax. Also, strategies that have high turnover, such as small cap funds or actively managed investments, can benefit significantly from tax deferral.

Can life insurance be used for wealth accumulation?

Permanent life insurance policies, once the commission is eliminated, provide benefits which can be powerful for wealth accumulation. Without a hefty commission being removed from premiums, client assets grow and can be withdrawn tax free. Talk to your DPL consultant for strategies on how to leverage commission-free life insurance for wealth accumulation.

How can annuities help with wealth accumulation?

Annuities can help clients accumulate wealth in two ways: 1) through tax-deferred accumulation, and, 2) through the efficient funding of retirement income. The additional tax deferral that can be accessed through low-cost variable annuities can be beneficial to high income earners who quickly max out their 401(k)s and IRAs. Academic research shows that annuities can fund retirement income more efficiently than traditional fixed income portfolios. By requiring fewer assets to generate income than traditional fixed income strategies, allocating to an annuity to fund essential retirement expenses leaves a greater share of a client’s portfolio to be invested in long term equity strategies that leverage accumulation potential.