Using Annuities for Tax Deferral

           

          

          

                     Using Annuities for Tax Deferral

          

          

               With annuities, your money keeps compounding

          completely tax-deferred until you're ready to take it

          out.  

               This technique is not just for the wealthy.  Let's

          assume that you are in the 33% tax bracket (counting

          federal, state and local taxes).  Let's say that you

          put $30,000 into a taxable investment that averages 10%

          return each year.  After 10 years you'd have $57,380. 

          But if you put the same $30,000 into an annuity that

          averages the same 10% return, your money is compounding

          without taxes taken out every year, and after 10 years

          you'd have $77,812. 

               In other words, by keeping the government's hands

          off your money, you earned an extra $20,432.  And

          that's after just 10 years.  Over 20 years, the

          difference would be $92,074.

               Until a few years ago many Swiss annuities were

          not a particularly good deal, with some high initial

          charges.  That is no longer the case, and there are now

          some superb products available to American investors.  

               A new Swiss annuity product (first offered in

          1991), Swiss Plus, brings together the benefits of

          Swiss bank accounts and Swiss deferred annuities,

          without the drawbacks -- presenting the best Swiss

          investment advantages for American investors.

               Swiss Plus, is a convertible annuity account,

          offered only by Elvia Life of Geneva.  Elvia Life is a

          $2 billion strong company, serving 220,000 clients, of

          which 57% are living in Switzerland and 43% abroad. 

          The account can be denominated in the Swiss franc, the

          U.S. dollar, the German mark, or the ECU, and the

          investor can switch at any time from one to another.  

          Or an investor can diversify the account by investing

          in more than one currency, and still change the

          currency at any time during the accumulation period --

          up until beginning to receive income or withdrawing the

          capital.  

               Swiss Plus offers instant liquidity, a rarity in

          annuities.  All capital, plus all accumulated interest

          and dividends, can be freely accessible after the first

          year.  During the first year 100% of the principal is

          freely accessible, less a SFr 500 fee, and loss of the

          interest.  So if all funds are needed quickly, either

          for an emergency or for another investment, there is no

          "lock-in" period as there is with most American

          annuities.

               Although called an annuity, Swiss Plus acts more

          like a savings account than a deferred annuity.  But it

          is operated under an insurance company's umbrella, so

          that it conforms to the IRS' definition of an annuity,

          and as such, compounds tax-free.

               Swiss Plus accounts earn approximately the same

          return as long-term government bonds in the same

          currency the account is denominated in (European

          Community bonds in the case of the ECU), less a half-

          percent management fee.

               According to Swiss law, insurance policies --

          including annuity contracts -- cannot be seized by

          creditors.  They also cannot be included in a Swiss

          bankruptcy procedure.  Even if an American court

          expressly orders the seizure of a Swiss annuity account

          or its inclusion in a bankruptcy estate, the account

          will not be seized by Swiss authorities, provided that

          it has been structured the right way.

               There are two requirements: A U. S. resident who

          buys a life insurance policy from a Swiss insurance

          company must designate his or her spouse or

          descendants, or a third party (if done so irrevocably)

          as beneficiaries.  Also, to avoid suspicion of making a

          fraudulent conveyance to avoid a specific judgment,

          under Swiss law, the person must have purchased the

          policy or designated the beneficiaries not less than

          six months before any bankruptcy decree or collection

          process.

               For more information contact Jurg Lattmann, JML

          Swiss Investment Counsellors AG, Dept. 212,

          Baarerstrasse 53, 6304 Zug, Switzerland; telephone 011

          (41-42) 26 55 00; fax: 011 (41-42) 26 55 90, attn:

          Dept. 212.

               Swiss annuities provide investment and tax

          benefits that are far superior to American annuities. 

          Some annuity holders are afraid that if they cash in

          their old annuities they will have to pay taxes on the

          accumulated earnings of the cash value. That's not

          true. The tax code allows you to exchange insurance

          policies tax free. You can exchange life insurance for

          life insurance, an endowment contract for another

          endowment or annuity contract, and an annuity for

          another annuity.  A recent Tax Court case makes the

          exchange even easier.  The taxpayer's old insurer

          refused to transfer the cash value of her old annuity

          to the new insurance company selected by the taxpayer. 

          Instead, the old insurer issued a check to the

          taxpayer, and the check was immediately reinvested in

          the new annuity.  The IRS claimed that there was income

          when the check was received because the taxpayer was

          not bound to reinvest it.  The Tax Court disagreed.  It

          said that the tax-free exchange provision is to be

          broadly interpreted.  You can cash in your old policy

          and use the proceeds to buy a new policy immediately.

          (Green, 85 TC No. 59(1985))

               The IRS ruled that the tax-free exchange of

          insurance policies applies when you exchange an U.S.

          annuity for a foreign annuity.  There is no requirement

          that either or both of the insurance policies exchange

          be issued by insurers doing business in the United

          States (Letter Ruling 9319024).

               The Swiss annuities are not foreign financial

          accounts, and therefore need not be reported on your

          tax return nor on the special form for reporting

          foreign financial accounts.