By Bill Broich
The power of tax deferral is not a new concept, Albert Einstein was even quoted saying that tax deferral (compounding) is one of the greatest inventions of the modern world. Not only is tax liability deferred but by doing so but you can increase the compounding from double compounding to triple compounding. Let me explain compound interest.
The Power of Compounding and How to Illustrate the Benefits in an Annuity…
“The Power of Compounding.”
*A Traditional Investment Account Has Double Compound Interest
Definition: Interest on the Original Principal and Interest on Accrued Interest.
*A Tax Deferred Deposit Account Has Triple Compounding Interest
Definition: Interest on Principal, Interest on Interest and Interest on Tax Savings
Who takes advantage or triple compounding, people who are growing important funds for a future event, such as retirement. Tax deferral also provides control over when tax liability is selected. Here is a simple way to understand tax deferral.
Tax Deferred Is Tax Diminished
Corporate America thrives on tax deferral and anytime taxes can be delayed it is an obvious benefit. By sending the tax liability to the future you will reduce the net out of pocket because the actual tax could be reduced by inflation. By using annuities for the benefit of tax deferral allows the prospect to have more control over the future use of the funds.
Sending the tax liability into the future also allows the annuity owner to never have to recapture tax liability in the years that tax deferral was used. There is never any need to re-file past tax returns because another huge benefit of tax deferral on annuities is no recapture.
When the accumulated interest in an annuity is accessed the tax liability is also accessed. This allows the annuity owner to have full control over when the tax is paid.
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