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    How tax-deferred assets can work for you

    October 25, 2024

    tax deferred assets

    Have you ever considered the impact tax-deferred* assets could have on your portfolio? Let’s get into the details of how they work and a few different types so you can decide for yourself.


    What are tax-deferred assets?

    Tax-deferred assets are investments with earnings that accumulate tax free until the investment owner withdraws those earnings. At that point earnings are taxable as ordinary income. A few examples include 401(k)s, IRAs, and annuities.


    Do tax-deferred assets have short-term or long-term benefits?

    The answer is both. Tax-deferred assets might be advantageous in a few different ways. Contributing money to, say, a 401(k) means you’re pulling from pre-taxed dollars, effectively lowering your annual taxable income, which can be helpful in the immediate future.

    So what about the long term benefits? Whether you’re trying to grow assets in preparation for retirement or to leave a legacy for your loved ones, tax deferral through, for example, an annuity can help harness this growth by letting you keep more of what you earn. The potential growth doesn’t have to be interrupted by taxable events, like capital gains.

    Tax-deferred retirement accounts are meant to encourage people to save and to not be completely dependent on Social Security, or other government-funded programs. They also have two main advantages over taxable accounts:

    1. As we already mentioned, contributing to these accounts with pre-tax dollars means they lower your annual taxable income.
    2. Next, you won’t owe taxes on your gains until you withdraw the funds. A capital gain in a taxable account means you’d owe taxes on it. And if you receive a dividend, you’ll be taxed on that as well.

    That’s why it’s very common for financial professionals to encourage investors to max out contributions to their tax-deferred accounts—especially if they’re in a high tax bracket but expect to pay lower taxes in the future.


    Annuities as tax-deferred assets

    Obviously, there are many different ways to envision retirement and probably just as many ways to fund it, so talking to your financial professional is the best way to discover what may be right for you. For the sake of this example, we’re going to discuss how annuities can help grow assets by deferring taxes.

    How do annuities work?

    Though they’re not without risk, annuities can provide a variety of retirement benefits. They can offer flexible choices which allow you to pick the options that help meet your needs.

    Basics of annuities

    You pay premiums to an insurance company—either as a single, lump-sum payment, or in smaller payments over time. What you pay into an annuity contract can then grow tax deferred.

    Next, you can choose when you want to start receiving annuity payments from your contract. The size of your payment is based on the accumulated value, your type of annuity, and the terms you chose for the contract. Depending on what you selected, you may be able to receive these payments for the rest of your life.

    Keep in mind: an annuity is a long-term retirement product; there can be withdrawal charges if you leave the contract early, and a 10% tax penalty if you withdraw before age 59½.

    There are also annuities where you can retain ownership over your funds and still receive potential lifetime income or legacy benefits for an additional cost. This way, you can have more flexibility in case your life circumstances change.


    Selecting a tax-deferred asset that’s right for you

    While they won’t be right for everybody, annuities can be versatile with a variety of options tailored to a specific retirement plan. When considering an annuity, here are some things to think about:

    1. Decide when you need retirement income: You can invest a lump sum and choose to start receiving payouts immediately, or down the road.
    2. Choose a product that’s right for you: There are a variety of annuities that may fit your specific retirement needs.
    3. Customize your plan with unique options: Add-on benefits† can guarantee income for life or help you leave a legacy.

    Types of annuities—all tax deferred

    1. Variable annuities: Customize your assets across a wide range of investment options for potential growth. Add-on benefits, available for an extra charge, can provide some protection, guaranteed income for life, and legacy creation.
    2. Registered index-linked annuities (RILA): Explore multiple index options, protection levels, and other ways to pursue growth with a RILA.
    3. Fixed index annuities: The market may be a bumpy ride, but it's historically been up more than down. Our fixed index annuities allow you to take advantage of that growth without risking your retirement nest egg.
    4. Fixed annuities: Jackson offers fixed annuities as a conservative option for growing your nest egg without exposing your assets to stock market volatility.

    Why a Jackson annuity?

    If you and your financial professional decide an annuity may help move you closer to your goals, consider Jackson. We’re committed to clarifying the complexity of retirement planning. Our range of annuity products, financial know-how and streamlined experiences strive to reduce the confusion that complicates your plans. We believe by providing clarity for all today, we can help drive better outcomes for tomorrow.

    Explore our interactive tools

    Our Educational Resources center and suite of calculators and tools provides you with helpful tips on planning and saving for retirment so you can make the best decisions for your future. Explore some of our many resources:

     

    We discussed tax deferral, but that’s only one aspect of retirement planning, so make sure you consider a variety of factors when consulting with your financial professional.

     

    Annuities are long-term, tax-deferred vehicles designed for retirement and are insurance contracts. Variable annuities and registered index-linked annuities involve investment risks and may lose value. Earnings are taxable as ordinary income when distributed. Individuals may be subject to a 10% additional tax for withdrawals before age 59½ unless an exception to the tax is met. Add-on living benefits are available for an extra charge in addition to the ongoing fees and expenses of the variable annuity and may be subject to conditions and limitations. There is no guarantee that a variable annuity with an add-on living benefit will provide sufficient supplemental retirement income.

    *Tax deferral offers no additional value if an IRA or a qualified plan, such as a 401(k), is used to fund an annuity and may be found at a lower cost in other investment products. It also may not be available if the annuity is owned by a legal entity such as a corporation or certain types of trusts. 

    †Add-on benefits that provide income for the length of a designated life and/or lives may be available for an additional charge. The amount of income that these benefits may provide can vary depending on the age when income is taken, and how many lives are covered when the benefit is elected. The cost of these benefits may negatively impact the contract's cash value. There is no guarantee that a variable annuity with an add-on living benefit will provide sufficient supplemental retirement income.

    ‡Lifetime income of the add-on lifetime benefits available with variable annuities becomes effective at issue if the designated life is age 59½ at issue, or upon the contract anniversary following designated life's 59½ birthday, provided the contract value is greater than zero and has not been annuitized.

     

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    Before investing, investors should carefully consider the investment objectives, risks, charges, and expenses of the variable annuity and its underlying investment options. The current contract prospectus and underlying fund prospectuses provide this and other important information. Please contact your financial professional or the Company to obtain the prospectuses. Please read the prospectuses carefully before investing or sending money.

    Jackson, its distributors, and their respective representatives do not provide tax, accounting, or legal advice. Any tax statements contained herein were not intended or written to be used and cannot be used for the purpose of avoiding U.S. federal, state, or local tax penalties. Tax laws are complicated and subject to change. Tax results may depend on each taxpayer’s individual set of facts and circumstances. Clients should rely on their own independent advisors as to any tax, accounting, or legal statements made herein.

    Guarantees are backed by the claims-paying ability of Jackson National Life Insurance Company or Jackson National Life Insurance Company of New York. For variable annuities, guarantees do not apply to the principal amount or investment performance of a variable annuity’s separate account or its underlying investments. They are not backed by the broker/dealer from which this annuity contract is purchased, by the insurance agency from which this annuity contract is purchased or any affiliates of those entities, and none makes any representations or guarantees regarding the claims-paying ability of Jackson National Life Insurance Company or Jackson National Life Insurance Company of New York.

    The latest maturity date or income date allowed under an annuity contract is age 95, which is the required age to annuitize or take a lump sum. Please see the prospectus for important information regarding the annuitization of a variable annuity contract.

    Annuities are issued by Jackson National Life Insurance Company (Home Office: Lansing, Michigan) and in New York, by Jackson National Life Insurance Company of New York (Home Office: Purchase, New York).  Annuities are distributed by Jackson National Life Distributors LLC, member FINRA. These contracts have limitations and restrictions. Jackson issues other annuities with similar features, benefits, limitations, and charges. Contact Jackson for more information.

    Jackson® is the marketing name for Jackson Financial Inc., Jackson National Life Insurance Company®, and Jackson National Life Insurance Company of New York®.