Tax season gives advisors opportunity to educate on tax benefits of certain financial products

New survey shows few Americans think of annuities or life insurance as tools to reduce taxes

 

FOR IMMEDIATE RELEASE
February 9, 2011

Contacts:
Charley Gillespie (614) 249-5701
gillesc1@nationwide.com

Jeff Whetzel       (614) 249-6354
whetzej@nationwide.com

COLUMBUS, OH — Financial advisors who educate investors about the tax benefits associated with annuities and life insurance and help clients prepare for potential tax increases can earn customer loyalty for the long term, according to a new Nationwide Financial survey.

The survey conducted by Harris Interactive of more than 1,750 Americans with at least $100,000 in investable assets, found that when asked what financial products reduce tax liability, only 15 percent recommended an annuity and only 12 percent chose life insurance.

Those low percentages may indicate more Americans need to know that investment earnings in annuities aren’t taxable until you withdraw money and, unlike 401(k)s and IRAs, there are no limits on the amount you can put into an annuity. And a life insurance policy’s cash value build-up is income tax deferred and the death benefit is income tax free.

“Our survey shows advisors have an opportunity to address their clients’ concerns about taxes and also educate them on various financial products that may help reduce their tax liability,” said Kevin McGarry, director of retirement income solutions for Nationwide Financial. “Not only do investors say they want advisors’ help, they say they’ll stay with advisors who help them prepare for tax increases.”

In fact, 83 percent of respondents say they are likely to stay with and use a financial advisor who helps them address future tax increases – including 41 percent indicating they would be very likely.

Tax confusion and concern

While Congress recently extended the Bush-era tax cuts, many investors were oblivious to the proposed 2011 tax law changes – including many Americans with financial advisors.

A third of Americans surveyed were unaware or unsure of any of the tax law changes under consideration for 2011. Of those who were aware, 84 percent learned about the potential changes from media. Only a small percentage heard about the changes from their financial advisor.

“This is an opportunity for advisors to bring tax awareness to their clients that they aren’t getting from anywhere but the media,” said McGarry. “There are strategies that they can put in place today to prepare their clients for whatever the tax landscape looks like in the years to come.”

About one in five respondents indicated they had little to no understanding of the proposed changes. Less than half of all respondents indicated that they had a strong understanding of the changes.

About eight in ten respondents say they are concerned about the prospect of increases in tax rates on dividend income, federal income and/or capital gains. Six in ten express concern about a potential increase in federal gift and estate taxes.

“The eleventh-hour extension of the Bush-era tax cuts is really just a two-year Band-Aid, but the extension does give advisors a second chance to reach out to clients and help them prepare,” said McGarry. “The increasing national deficit will have to be addressed at some point, and tax increases are likely to be part of the solution. It’s more important than ever for your clients to have a flexible plan in place to help them address the ever-changing state of taxes.”

Survey Methodology

Harris Interactive collected the data via an online survey between November 17 and December 1, 2010 among a nationally representative sample of 1,758 U.S. residents, 1,221 of whom have investable assets of $100,000 or more and 537 of whom have investable assets of $250,000 or more. Results for age, sex, race/ethnicity, education, region, employment, and household income were weighted where necessary to bring them into line with their actual proportions in the population of adults with $100,000 or more in investable assets (and, for the second quota group, investable assets of $250,000 or more). The survey has a margin of error of +/- 5 percent.

About Nationwide
Nationwide, based in Columbus, Ohio, is one of the largest and strongest diversified insurance and financial services organizations in the U.S. and is rated A+ by A.M. Best. The company provides a full range of personalized insurance and financial services, including auto insurance, motorcycle, boat, homeowners, life insurance, farm, commercial insurance, administrative services, annuities, mortgages, mutual funds, pensions, long-term savings plans and health and productivity services. For more information, visit www.nationwide.com.

As your personal situations change (i.e., marriage, birth of a child or job promotion), so will your life insurance needs. Care should be taken to ensure this product is suitable for your long-term life insurance needs. You should weigh any associated costs before making a purchase. Life insurance has fees and charges associated with it that include costs of insurance that vary with such characteristics of the insured as gender, health and age, and has additional charges for riders that customize a policy to fit your individual needs.

An annuity is a long-term, tax-deferred investment designed for retirement that will fluctuate in value. It allows you to create a fixed or variable stream of income through a process called annuitization and also provides a variable rate of return based on the performance of the underlying investments.

But, as with most things in life, an annuity does have limitations. If you decide to take your money out early, you may face fees called surrender charges. Plus, if you're not yet age 59½, you may also have to pay an additional 10% tax penalty on top of ordinary income taxes. Naturally, if you do take an early withdrawal, your death benefit and the cash value of the annuity contract will be reduced.

You should also know that an annuity contains guarantees and protections that are subject to the issuing insurance company’s ability to pay for them. But these guarantees don’t apply to any variable accounts that are subject to investment risk, including possible loss of your principal.

An annuity is a contract between you and an insurance company and it’s sold by prospectus. While it may take some time, you should read these documents. They describe risk factors, fees and charges that may apply to you. Variable annuities have fees and charges that include mortality and expense, administrative fees, contract fees, and the expense of the underlying investment options.

Federal income tax laws are complex and subject to change. The information in this document is based on current interpretations of the law and is not guaranteed. Neither Nationwide nor its representatives give legal or tax advice. Please consult your attorney or tax advisor for answers to specific questions.

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