“Be wary of tax drag on clients,” said Friedman, who is a political affairs expert and the founder of The Washington Update. “Look at clients’ mutual fund. If those funds are not tax efficient, the clients could be losing out,” he said.
And Friedman added, “The benefit of tax deferrals with annuities, make it a great product during this era of tax drag. Life insurance products are also another great investment in this market climate.”
Friedman said one thing to be on the lookout for is The Camp Tax Reform Proposal, “The first major tax overhaul since the Reagan era.” Because this is an election year, tax reform will not gain traction until 2015. While annuities and life insurance will not be affected by the current tax reform proposal, advisors should not turn a blind eye as it’s an education opportunity when working with clients.
Some highlights from the Camp proposal for individuals:
25 percent tax rate, plus 10 percent surtax on income > $450k
Tax-exempt bond interest and employer-provided insurance premiums included in surtax
Mortgage interest deduction limited to $500k of debt
No deduction for state and local taxes
Half of 401k contributions treated as Roth (non-deductible)