Evaluating alternative investments.I was surprised and disappointed by the article "Investment Tax Planning Tax planning Devising strategies throughout the year in order to minimize tax liability, for example, by choosing a tax filing status that is most beneficial to the taxpayer. for Retirement" (JofA, Aug.03, page 63). While on target with the discussion of qualified retirement plans and Roth IRAs Roth IRA An individual retirement plan that bears many similarities to the Traditional IRA. Contributions are never deductible, and qualified distributions are tax-free. A qualified distribution is one that is taken at least five years after the taxpayer established his/her first , the article misinformed readers about nonqualified annuities. Given the recent changes in tax laws concerning more favorable tax treatment of dividend income and capital gains, there is no question that nonqualified annuities have lost some of their tax appeal, despite the opportunity for tax deferral tax deferral The delay of a tax liability until a future date. For example, an IRA may result in a tax deferral on the amount contributed to the IRA and on any income earned on funds in the IRA until withdrawals are made. . However, taxation is only one component in evaluating the overall value of any investment. While the article focused on the taxation of different retirement investment alternatives, it overstepped its bounds by deviating to discuss the characteristics of such alternate investments other than taxation. The use of a .5% threshold to determine whether an annuity is too expensive to select as an alternative investment is strictly an opinion and completely arbitrary. Considering the last three years of stock market performance, most people would have gladly given up more than .5% of return to "insure" their investment--receiving the greater of the market or a guaranteed compound 5% or 6% rate of return. Over the last 36 months, many people have lost 40% or more of the value in their portfolios where no such downside protection Downside Protection Generally used in connection with covered call writing, this is the cushion against loss, in case of a price decline by the underlying security, that is afforded by the written call option. existed. Annuities, as with any other product, financial or otherwise, should be completely explained to and understood by potential clients. Then ultimately the client decides whether the costs are worth the benefits. Daryl D. Jones, CPA (Computer Press Association, Landing, NJ) An earlier membership organization founded in 1983 that promoted excellence in computer journalism. Its annual awards honored outstanding examples in print, broadcast and electronic media. The CPA disbanded in 2000. Orlando, Florida The city of Orlando is a major city in central Florida and is the county seat of Orange County, Florida. According to the 2000 census, the city population was 185,951. A 2006 U.S. |
|
||||||||||||||||
Printer friendly
Cite/link
Email
Feedback
Reader Opinion