Annuities Can Provide Tax Bracket Cushions

Ordinary annuities convert the premiums into vehicles with distribution that are set to be taxed, eventually.

Traditionally, many wealth managers have scoffed at the idea of using annuities for that reason and focused instead on careful efforts to use whole life insurance and other forms of cash-value life insurance.

But Justin Haywood, a certified financial planner based in Houston, believes that annuities can play a role in wealth management, not just in retirement income planning for middle-income people.

Using annuities may not help much for clients with income that will stay very high throughout their retirement years, but it could help some who are likely to fall into a lower tax bracket later, Haywood said in an email interview.

Using annuities’ tax-deferral power might also serve as a cushion for some clients who are about to bump up against a tax bracket ceiling, Haywood said.