Using Annuities for Tax Deferral

With annuities, your money keeps compounding

completely tax-deferred until you're ready to take it

out.

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.

(Green, 85 TC No. 59(1985))

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.