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Investor Basics

Tax Deferral

As Benjamin Franklin famously said, nothing is certain in this world but death and taxes.

Centuries later, it's still a fact of life: Taxes are inevitable for us all. And when it comes to building a financial foundation, they can be a daunting obstacle. The average American spends more on taxes than on food, shelter and clothing combined. When viewed through the lens of investing, this means that every day you and your assets work toward paying taxes is a day your resources are not working toward your long-term objectives.

So, what if there were a way you could delay paying taxes on investment earnings and instead potentially keep your money at work for you? Fortunately, there is.

*Tax deferral offers no additional value if an annuity is used to fund a qualified plan, such as a 401(k) or IRA. It also may not be available if the annuity is owned by a "non-natural person" such as a corporation or certain types of trusts.

Scott Greenberg, Tax Foundation, "Tax Freedom Day 2017 is April 23," April 2017.


What is an Annuity? An annuity is a long-term, tax-deferred vehicle designed for retirement. Variable annuities involve investment risks and may lose value. Earnings are taxable as ordinary income when distributed and may be subject to a 10% additional tax if withdrawn before age 59½.

Keeping More of Your Money

One way to delay the impact of taxes — and in some cases lessen the impact considerably — is with a tax-deferred investment vehicle. Rather than paying taxes on your investment earnings each year, you can allow investments to potentially grow without incurring taxes until withdrawn. This can help keep all your principal and earnings, including money that would otherwise be diverted to taxes, working for you.

Also consider that if you wait until retirement to withdraw your investment earnings, you may be in a lower income tax bracket, which could reduce your tax burden.

The accompanying hypothetical example compares taxable vs. tax-deferred growth of $100,000, assuming an 8% annual rate of return and a 32% federal tax rate over a 20-year period. As you can see, whether you withdraw a lump sum or spread out your withdrawals over time, the tax-deferred account is significantly more valuable than the taxable account after the 20-year time period.

The Power of Tax Deferral

Growth of $100,000 over 20 years

Hypothetical infographic that illustrates the power of tax deferral.

This chart is hypothetical and for illustrative purposes only. The hypothetical rates of return shown in this chart are not guaranteed and should not be viewed as indicative of the past or future performance of any particular investment.

Tax deferral offers no additional value if an annuity is used to fund a qualified plan, such as a 401(k) or IRA. It also may not be available if the annuity is owned by a "non-natural person" such as a corporation or certain types of trusts.

This example assumes a single, hypothetical contribution of non-qualified $100,000, an 8% annual return and a 32% tax rate. The after-tax amount available is in the form of lump sum distribution after the deduction of federal taxes and the original investment amount in a 32% tax bracket. (The actual tax results of any distribution will depend on an individual's personal tax circumstances.) This hypothetical example illustrates tax deferral and does not represent the past or future performance of any particular product. This example does not assume subsequent investment or withdrawals and also does not include mortality and expense charges, sales charges, and administrative fees typically associated with variable annuities; inclusion of these items would lower the performance shown.

Lower maximum tax rates on capital gains and dividends would make the investment return for the taxable investment more favorable, thereby reducing the difference in performance between the accounts shown. Changes in tax rates and tax treatment earnings may impact the comparison shown. Investors should consider their individual investment time horizon and income tax brackets, both current and anticipated, when making an investment decision, as these further impact the results of the comparison.

The bottom line is that no matter the rate of return, investments in a taxable account take longer to grow than those in a tax-deferred account.

Going beyond the impact taxes can have on your investment portfolio, it's also important to consider their impact on the inheritance you pass on to loved ones. With strategies available to help you optimize and streamline the transfer of wealth, a tax-deferred investment vehicle could provide lasting benefits for your beneficiaries.

Knowledge is power when it comes to taxes and almost anything in the investing world, so do your homework. Complete as much research as possible on the ins and outs of every investment, and make sure to take specific care to focus on how the tax features of each fit with your objective and goals. It might also make sense to work with an advisor or tax professional to take advantage of their experience and expertise in this all-important area.

Tax-Deferral Benefits in Each Phase of Investing
Hypothetical infographic that illustrates the benefits of the phases of tax deferral.
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Variable Annuities
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Learn more about the investment and benefit options available in Jackson’s variable annuities (VAs).

Before investing, investors should carefully consider the investment objectives, risks, charges and expenses of the variable annuity and its underlying investment options. The current contract prospectus and underlying fund prospectuses, which are contained in the same document, provide this and other important information. Please contact your representative or the Company to obtain the prospectuses. Please read the prospectuses carefully before investing or sending money.

Jackson® and its affiliates do not provide legal, tax or estate-planning advice. For questions about a specific situation, please consult a qualified advisor.

Annuities are issued by Jackson National Life Insurance Company® (Home Office: Lansing, Michigan) and in New York by Jackson National Life Insurance Company of New York® (Home Office: Purchase, New York). Variable annuities are distributed by Jackson National Life Distributors LLC, member FINRA. May not be available in all states and state variations may apply. These products have limitations and restrictions. Contact Jackson for more information.

In certain states, we reserve the right to refuse any subsequent premium payments.

Jackson® is the marketing name for Jackson National Life Insurance Company® and Jackson National Life Insurance Company of New York®.

• Not FDIC/NCUA insured • Not bank/CU guaranteed • May lose value •
Not a deposit • Not insured by any federal agency

CMN16264 01/18

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Jackson National Life Insurance Company
1 Corporate Way
Lansing, MI 48951