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A Washington insider’s outlook on annuities

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Speaking at the 2014 IMO Summit in Scottsdale, AZ today, Andy Friedman gave reason for optimism for annuity advisors.

“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)

Some highlights from the Camp proposal for businesses:

  • 25 percent tax rate
  • Modified accelerated depreciation and LIFO accounting repealed
  • Repatriation of future offshore earnings taxed at 5 percent
  • Offshore earnings from intangibles taxed currently at 15 percent rate
  • 70 percent earnings of participation owners of pass-through entities subject to employment taxes
  • Asset-based tax on large financial institutions

Before closing, Friedman left the audience with one more tip: “We are not going to default on the national debt. Next March 15, the date when the debt ceiling has to go up, view this as an opportunity. If you see the posturing and arguments begin in Congress over the debt ceiling, then that’s the time to go out and buy.”

See also:

5 ways regulation is affecting the annuity industry

5 answers every investor needs to know about annuities


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