The Upside of Tax Season

Spring Cleaning for your Finances

With so much focus on taking advantage of all available deductions, avoiding scams, and wading through forms and paperwork, it’s no wonder that so many of us feel overwhelmed during tax season.  However, there is an upside to tax season; namely, doing our taxes forces us to look back on the previous year and take stock of our financial situation, thinking through how we may want to adjust our financial goals moving forward.  A big part of this review should also take into consideration which of our investments and accounts are most tax advantageous.  Just skipping that 1099-INT for 401(k)s, IRAs, and annuities is enough to remind us that we don’t have to pay taxes on the interest we earn on these accounts.

Annuities, in particular, are attractive to many consumers from the standpoint of tax deferral because—unlike other tax-deferred accounts, such as 401(k)s and IRAs—the product has no limits on annual contributions.  That means you can put away more money for retirement.  This is equally useful for high earners and those that are closest to retirement age and may need to catch up.  With an annuity, all the money you invest compounds year after year without any tax bill. That ability to keep every dollar invested working for you is a big advantage over taxable investments.  When you eventually make withdrawals, the amount you contributed to the annuity is not taxed, but your earnings are taxed at your regular income tax rate.

For more information about how one type of annuity, known as a Fixed Indexed Annuity works, check out this educational video.

For more on information on how to compare taxable, tax-deferred, and tax free growth, click here to access our exclusive calculators.

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