Can’t Deduct Investment Fees?  Consider *THIS* Annuity

Posted on Tue, Feb 22, 2022 ©2021 Drucker & Scaccetti

IdeasBy: Michael W. Donahue, CPA, MT, CFP

 

A typical investment allocation for investors is to bonds and, more increasingly, alternative investments such as private equity and hedge fund investments. As effective as these allocations may be to your investment strategy, they have painful tax implications due to high-income tax rates on interest income and non-deductibility of investment fees. In a case such as this, a Private Placement Variable Annuity (PPVA) should be considered for these investors. Here’s how it works…

 

With PPVA, an investor contributes cash to an annuity contract, which is then invested in fixed income and alternative strategies. A PPVA policy is sometimes referred to as an “investment-only annuity.” At the cost of a small annual annuity fee (half of 1%), the investor defers taxability to the date they take cash out of the PPVA policy. Since the investment fees decrease the underlying investment value, these fees become, in fact, deductible. Additionally, it is possible that the payments out of the annuity occur when the investor retires and resides in a no- or low-tax state.

 

If you are experiencing decreased after-tax investment returns due to the taxability of interest income or the non-deductibility of investment fees, an investment-only annuity (PPVA) should be considered. Talk to your investment advisor about its application to your situation. As always, The Tax Warriors® at Drucker & Scaccetti are happy to help you get started. Call on us to discuss.

Topics: PPVA, investment fees, Private Placement Variable Annuity

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