Taxes! Having just sent 250+ pages of tax reports from my Separately Managed Accounts (“SMA”) to my accountant along with my other tax information, I feel (putting it politely) particularly engaged by the subject. (I’m not as much of a procrastinator as it appears, since we’ve filed for an extension.)

In the financial press, tax time is also “tax strategy” time, with a proliferation of articles, blogs and webinars proposing ways to lower your tax bill.

For example, an article in last Sunday’s New York Times Mutual Funds Report (April 10, 2011) , “Tax Savvy: Strategies to Lower Your Bill” recommended several tax savings ideas that include: (1) beware of huge capital gains; (2) consider exchange traded funds (“ETFs”) over SMA’s; and (3) don’t reinvest fund dividends in taxable accounts. All of this is sound tactical advice; but the key word is “tactical”. What’s missing is a genuine strategy.

In that regard, here are some strategic thoughts for you to consider.

1) Add up the assets you hold outside of a 401(k) or other “qualified” plan, Rollover IRA, etc. where taxes on investment earnings are deferred. Based on the most recent Federal Reserve Bank Survey of Consumer Finances, nearly 50% of all the financial assets held by average investors are in taxable accounts or investments, even though those assets may be intended for use in retirement.

2) Figure out what part of these non-qualified assets you’d like to set aside to supplement your qualified and Rollover IRA retirement savings and Social Security. That sum will constitute what I call your Personal Retirement Assets. (There are plenty of good retirement calculators available to help with your analysis.)

3) Consider investing a portion of these Personal Retirement Assets in a no load variable annuity, a kind of product that is specifically designed for long term retirement assets because of its tax deferral and annuity options.
Note that while there are lots of variable annuities to choose from (several of which I designed a few years back), most VA’s come today with high fees and complex extra cost riders to provide a minimum against future withdrawals (more about these designs in a separate blog). Indeed, a review of the available products turns up only a few no-load variable annuities.

Three good ones to consider are offered by Fidelity, TIAA-CREF and Vanguard; each may be available on a direct basis or through a fee-based advisor. These products offer a wide array of fund choices with institutionally-priced (i.e. lower) fund management fees, and low annuity fees.

I strongly suggest that once the current tax season is over, you consider the advantages of using a no load variable annuity as a key element in building a true, long term retirement strategy. Remember these major benefits: (1) tax considerations will no longer drive your investment decisions; (2) you’ll say goodbye to 250+ page tax filings and associated CPA costs; and, (3) you’ll have no tax to pay on reinvested investment earnings until you withdraw funds or take annuitized income.

As for me, I’m already planning next year’s tax post, starting with two goals: first, I’ll have filed on time and second, you, like me, will have discovered the benefits of no load variable annuities.

Jerry Golden
Golden Retirement, LLC