Investment Needs
Tax Deferral
Tax Deferral
We offer greater tax deferring capacity for clients who’ve maxed out their 401(k)s, received a large sum of money, seek downside protection, or for active managers who need to improve the tax efficiency of their strategies.
Variable annuities are long-term, tax-deferred investments investors buy from an insurance company to help them save for retirement. They are called “variable” because their value fluctuates based on the performance of the underlying investment options chosen. Some variable annuities offer optional living and death benefits for an additional fee. There are some limitations that may not be right for all investors, including that withdrawals are subject to income tax and those taken before age 59½ may be subject to a 10% early withdrawal federal tax penalty. Keep in mind that all guarantees and protections are subject to the claims paying ability of Nationwide Life Insurance Company. We also need to add that all guarantees and protections are subject to the claims paying ability of Nationwide Life Insurance Company.
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Run Your Own Numbers
See the Value of Tax Deferral
Large cash infusions can cause tax headaches. Variable annuities can provide additional capacity in events likes these.
Large cash infusions like the sale of a business, annual bonus, or an inheritance can cause tax headaches. Thanks to virtually unlimited contribution limits, advisors may rely on a low-cost Investment Only Variable Annuity (IOVA) for the additional capacity needed in events like these. An IOVA can provide liquidity and a tremendous diversity of choice, all at a low-cost, to take full advantage of the compounding power of tax deferral.
Meet Jim
Small Business Owner in need of tax deferral
JIM, Small Business Owner
After more than 30 years building a small roastery, and coffee shop empire, Jim (70) was approached by another local business owner looking to expand his restaurant business. It was a tough decision, but because his daughter Sara was pursuing a career in another field, Jim was free to sell his profitable business, and retire. In the end, he sold the roastery, a small retail distribution business, and two shops for over $5 million.
He'd never saved much for retirement, instead choosing to pump that money back into his coffee shops. Jim met with his financial advisor to discuss a strategy for investing this money to fund his retirement, and hopefully leave a little for his daughter. "Invest it, don't give too much to Uncle Sam, and don't lose any of it, for Pete's sake!" was the directive. Given his age, his advisor suggested he invest a large chunk of it in the Investment Only Variable Annuity, Monument Advisor, where he could invest it conservatively, and let it continue to grow at a low cost.
This would afford him the flexibility to take scheduled automatic withdrawals without being forced to annuitize (until age 100), so he could stay in the market. With Monument Advisor's broad selection of more than 350 underlying funds, his advisor could choose from among liquid alternatives and managed volatility options to potentially protect the downside, and meet Jim's income needs in retirement. Investing his retirement dollars in the Monument Advisor IOVA would also help him avoid probate, and grant his heirs some flexibility when inheriting those assets in the future.
The compounding power of low-cost tax deferral can add up to a more secure and satisfying retirement option for your clients.
With contribution limits of only $19,000 (for 2019) high-earning investors can max out their 401(k) plans quickly. Looking to extend tax deferral, these investors have typically sought out traditional variable annuities for their higher maximums. But the cost and complexity of these retirement vehicles can limit returns. Typical variable annuities charge 1.32% in M&E fees, and often come with lock up periods that make them illiquid and expensive. For clients looking to maximize accumulation for retirement, a simplified, low-cost Investment Only Variable Annuity (IOVA) may help solve the cost and complexity problem.
Meet Ellen
Advertising Agency Partner who has maxed out her 401(k)
ELLEN, Advertising Agency Partner
Ellen, 45, is a partner in a fast-track advertising agency. She earns a substantial salary each year and consistently maxes out her 401(k) account. She needed to maximize tax deferral beyond the limits of her 401(k) ($18,500 in 2018), while avoiding the annual tax headache with dividends and income in her taxable investments. She looked into traditional variable annuities, but their cost, complexity and lack of liquidity made her squeamish.
Using a Nationwide Advisory Solutions calculator, her advisor ran a comparison between Monument Advisor and a taxable investment. He was able to demonstrate how the simplified, low-cost Monument Advisor Investment Only VA could improve accumulation, without increasing risk... Good news since her accumulation horizon is over 20 years. Ellen began investing her post- 401 (k) contributions into Monument Advisor which offers virtually unlimited contributions.
Net/Net: Ellen's annual tax headache is minimal, and those additional retirement savings will benefit from the compounding power of low-cost, tax-deferred growth until she begins taking distributions. (And starts writing her screenplay.)
Improving the tax efficiency of client portfolios is critical for improving investment returns.
Locating tax-inefficient assets in a tax-deferred vehicle eliminates the tax drag on dividends and interest income and allows those reinvested assets to compound over the life of the investment, which can improve accumulation. The challenge is to find a low-cost, tax-advantaged account with a large enough selection of underlying funds to meet the needs of high net worth investors.
Meet Jerry
Salesman trying to minimize the tax impact on his fixed income investments
JERRY, Salesman
To celebrate Jerry's 60th birthday, his son Paul flew him to Paris to watch the final stage of the Tour de France. He would never indulge in this kind of experience on his own, though he'd been a lifelong cycling fan. Paul was happy to witness his father's joy that day, knowing how hard he worked to amass sizable investment assets, and how little he ever spent on himself.
At 60, Jerry was eyeing retirement in 8 years, and reached out to his financial advisor, Carl to begin planning for his near-term strategy. Jerry had always been a practical investor, and was growing more risk averse as he neared the end of his working days. In addition to some long-held stock investments, and equity funds, Jerry held a significant amount of fixed income, and alternative investments to manage correlation. After many years, Jerry was growing weary of the annual headache of paying ordinary income taxes on dividends and income distributions in his bond funds and alternatives.
Carl suggested that they employ an asset location strategy to combat the tax drag this was causing in his portfolio. The recommendation was simple: keep the long-term cap gains-generating investments like his long-held stocks and equity funds in the taxable brokerage account. They were already fairly efficient. The tax-inefficient bond funds and alternatives (REITs, MLPs, commodities) would then be located in a tax-deferred Investment Only Variable Annuity (IOVA). Investing in the Monument Advisor IOVA would allow him to defer paying those taxes, and let the investment compound and grow until he needed the money—a strategy that could help him get to his retirement finish line without taking on any additional risk.
For clients approaching retirement, an unexpected market fluctuation could mean the difference between retirement now and retirement much later.
Protecting assets from volatility is critical for preserving your clients’ retirement assets. Using Nationwide Advisory Retirement Income Annuity®, clients can elect Nationwide Pro 4SM Income Rider, a guaranteed lifetime withdrawal benefit1, for the opportunity to lock in market performance each year2, protecting their future retirement income3 from any market downturn. Combined with the tax-deferred benefits annuities offer, NARIA® can help financial professionals address their clients’ retirement income needs.
1Nationwide Pro 4 is available for an additional cost of 0.45% (0.60% for joint option).
2An annual step-up feature on your income benefit base is available if contract value is higher than benefit base on contract anniversary (please keep in mind that early, excess and non-lifetime withdrawals may reduce or terminate the income benefit base; certain restrictions and limitations may apply).
3Withdrawals of earnings at any age are subject to ordinary income tax; distributions prior to age 59½ may be subject to a 10% early withdrawal federal tax penalty.
Meet Terry
Meet TERRY
Terry is ready to focus on his retirement savings. Meeting with his financial professional, Terry expressed his need to aggressively save for retirement but is concerned about market volatility. Terry lived through the 2008 Crisis, which nearly cost him his business when the markets declined. While he was able to withstand that market correction, he knows another could be disastrous to his retirement, especially when he’s trying to play catch-up.
That’s when Terry’s financial professional introduced him to Nationwide Advisory Retirement Income Annuity® (NARIA®), a fee-based variable annuity. The tax-deferral provided by NARIA® enables Terry to accumulate assets at a potentially greater rate, and through the election of Nationwide Pro 4SM Income Rider1, a Guaranteed Lifetime Withdrawal Benefit, Terry can protect those years of positive performance by locking in a guaranteed income. And in the event of a market downturn, Terry’s income benefit base will be protected.
Nationwide Pro 4 allows Terry's financial professional to access NARIA's 150+ investment options2 with a maximum equity exposure of 100%, tailoring an investment strategy to Terry's specific risk tolerance. Each year, Terry has the opportunity to lock in a higher benefit base if his account value is up from the previous year, potentially giving him a greater retirement income stream when he decides to invoke it. And in the event of a correction, Nationwide Pro 4 can provide Terry with a retirement income stream he can count on.
1
Nationwide Pro 4 is available for an additional cost of 0.45% (0.60% for joint option).
2
Certain allocation limitations may apply, see prospectus for details.
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