Private Annuities

is anyone out there have any experience with using private annuities as a means to defer most their capital gains taxes? i've been learning about it and it seems to be an attractive setup for trading.

thanks
-funky

 

Hi Funky:
You won't get many replies on this subject. Most folks simply do not have the education to make a competent comment. Are you looking for a variable or fixed annuity? You say it is private, but is it held by an insurance company or a third party executor? Most of the time annuities are too expensive when compared with alternatives. Vendors of Annuitized products often include surrender charges, early exit charges, annual maintenance charges, and on and on. There are many alternatives including self directed tax deferred accounts in which you can invest using a number of vehicles including real estate. There is a good website that may be of interest to you as follows:

http://www.variableannuityonline.com/main/aa.cfm

For my own account, I would not consider an annuity. I don't claim to be an expert, but people who advise me suggest that trust accounts and self directed IRA's are among the best alternatives to consider.

Hope this is of some help. Best Regards, Steve46

 

steve, thanks.....

the way i understood it was (and maybe this isn't called a private annuity) that you go to a offshore management company and you setup a brokerage account with them (you give them your capital). you are then put in charge of trading that account.

in return they give you montly payouts (like an income) based off of the value of the trading account. thus, while you are trading, the capital in that account remains tax free from capital gains. only the annuity payout is taxed.

also, many of them offer instant liquidity so if you want to take all of the money out of the setup you can. but eventually you have to pay the capital gains tax once it comes out.

as i understand it this is one of the last legal offshore setups there is. unfortunately, i probably won't get any response, like you said -- most of the people on this board are just trying to find out how to trade still.....

 

Do you have any internet sites that are doing this? Would you post them?....I want to get educated as you say....

I am guessing the respective countries where the account is set up would need to be a tax free type of country that do not have taxes of their own. As US residents we are subject to worldwide income reporting. But what do I know? I am just a dumb ET'r. But when I lived in Sweden for 6 years I had to fill out a US tax return AND a Swedish tax return. Sometimes if you are not a resident of the country that your account is in, there can be complications as to the payment of taxes on interest.....capital gains.....sales of stock.....etc...These complications are usually addressed when setting up the account. Some countries do not allow you to earn and keep interest for example unless you are a legal resident or entity...The scheme you are explaining reminds me of a limited partnership type of set up.

Michael B.

P.S. couldn't you accomplish the same thing while leaving your capital here in the US?....couldn't you become a LTD company and only pay on what you take out? I can see the benefits in this as you can control the tax bracket your in...

 

michael,

yes, the IBC or entity that loaned you the monies would be located in a capital gains free zone. yes, you must report all worldwide income (u.s. is the only nation that does this i think), so you DO pay taxes on what would be then earned income (annuity is part cap gains, part earned income i think, not sure).

however, foreign entities not owned by a resident citizen do not pay capital gains taxes if investing in the u.s. markets. they DO pay 30% on dividends and interest i think.

any corporation, whether offshore or not will be considered a CFC (controlled foreign corporation) if you are the beneficiary or owner of it. by handing your assets over to a managing company, THEY are the owners of that property now -- making this a legal setup. in return, they schedule annuity payouts to you. oh and by the way you can manage 'their' assets if they let you this is the only legal way i have found to get around immediate cap. gains taxes. remember, you are just deferring the gains taxes until you finally decide to take the entire payout (which may be never if you decide to leave to family after you die).

there are people out there that setup an IBC with nominee shareholders/director, but remain the sole beneficiary of all operations. THIS is illegal i believe, since this type of setup is considered a pass through entity or something, hence a CFC.

also, by placing the assets with a managing company i believe they are immune to litigation as well. although i think people might still be able to come after your annuity payments.

lots to learn before i do anything! i like to know what options there are before i start paying for legal/tax advice that i might not need.....

-funky

 

Hmmm. That's interesting. A futures trading account inside a variable annuity. I'm not sure why such an account would need to be off shore unless there is some way it is avoiding some restriction in the U.S.

Also, I would be very careful to check out ALL applicable fees, possible taxes (the IRS might not like them) and restrictions. Especially if they are not offered by U.S. insurance companies. And make sure the insurance company wraping the annuity is stable and legit. And that there is legal precident for this type of annuity and U.S. tax deferal.

 

Something else you might want to consider. 60% of futures gains are taxed as long term gains. However, when you withdraw money from an annuity I think it is always considered ordinary income which is taxed at the regular tax rates. This might cause you to actually pay more tax on any gains than if you had just paid them from a regular brokerage account. Not to mention the fees and any possible penalties (probably hefty) that would be charged by the entity creating the annuity.

Also, if the account had a loss in any year, you would not be able to deduct that from your regular income in that year or offset any other gains. It would only offset gains in the annuity.

 

it needs to be offshore so it doesn't have capital gains tax. this is the whole point.

 

you are correct i believe. the annuity payments are earned income which wouldn't allow you to claim a loss. and the futures tax break would have to be considered.