With the changing demographics worldwide, and the increased interest in retirement planning, Variable Annuities make more sense then ever.
The two most attractive features of an offshore variable annuity are investment flexibility and tax deferral. Because variable annuities typically have no life insurance component, and therefore no associated cost of life insurance charges, they are usually more efficient wealth accumulators than life insurance.
By far, the easiest, least expensive way to get access to offshore alternative investments, such as hedge funds, structured derivatives etc., is through the use of a variable annuity issued by an offshore insurance company. Investments may be moved from one manager to another with no tax consequences.
With any Variable Annuity, there are two distinct time periods involved: the accumulation period and the payout or annuity period. The accumulation period is that time during which funds are being paid into the annuity and assets are accumulated. The payout or annuity period refers to the point at which the annuity ceases to be an accumulation vehicle and begins to generate benefit payments on a regular basis.
Use of Variable Annuities for Tax-Advantaged Investing:
An Annuity is an important component of a successful wealth accumulation plan. It offers a number of benefits, including accumulating tax-deferred income, and providing access to offshore investments.
The principal use of an annuity is to provide income for retirement. Annuities can play a vital role in any situation where a stream of income is needed for only a few years or for a lifetime.
Compensation plans may enhance the retirement benefits of “global” executives and also be needed to retain the most influential and sought-after key employees. Large multinational corporations use annuities to fund certain benefit plans with respect to their “global” executives in a tax-efficient environment.
Prior to a foreign person becoming a tax resident of the United States, annuities may be used to defer income on a foreign person’s international wealth, and to avoid future U.S. tax consequences, if he or she decides to move back to his or her country of origin.