50+ Lifestyle: Using Annuities for Tax Deferral

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. )

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.

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