THE POWER OF TAX-DEFERRAL
This table lists a series of rates for tax-deferred annuities alongside the rates needed for a bank CD (or other taxable savings product) to generate equivalent net earnings. Unless a CD is an IRA, the CD interest is taxable even if it is left on deposit with the bank.
*Remember that "tax-deferred" does not mean "tax free." Taxes must eventually be paid on annuity growth, which moderates the degree of an annuity's advantage over a CD.
In addition, withdrawals from an annuity before age 59 1/2 may incur an additional 10% IRS tax penalty.
Rate for tax-derred annuity |
Equivalent CD rate 28% bracket |
3.00 |
4.17 |
3.25 |
4.51 |
3.50 |
4.86 |
3.75 |
5.21 |
4.00 |
5.56 |
4.25 |
5.90 |
4.50 |
6.25 |
5.00 |
6.94 |
5.50 |
7.64 |
6.00 |
8.33 |
| Formula for after-tax yields | Example |
| Annuity interest rate 1-Tax rate = Yield |
5% Annuity 1-28=.72 = Yield |
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