Vendors of yet more tax-deferral schemes are ready to pick up where the annuity trust business leaves off.
But many are also in a very low tax bracket, nullifying the supposed benefit of the tax-free status of muni bonds or the tax-deferral of fixed annuities.
Even if your withholding rate rises because of possible tax-rate increases after 2012, you can develop a tax-deferral strategy if the flat rate is less than your marginal tax rate.
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Most pipelines are on a 15-year depreciation schedule and MLPs like Kinder Morgan and Enterprise Products are adding more assets each year, so the tax-deferral party will last for a long time.
Another selling point of MLPs is tax deferral. (So hold MLPs in a taxable, not a tax-deferred, account.) The deferral works like this: In your early years of owning an MLP, most of your cash payout counts as a return of capital--it isn't taxable, but it reduces your basis in the MLP shares.
Tax Deferral: Pre-tax contributions allow you to defer the taxes until you withdraw the money from your plan.
An open question: whether Mr. Slott will pay his conversion taxes at this year's top rate of 35% or elect a one-time deferral into tax years 2011 and 2012.
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It seems to me that Romney benefits from lower long-term capital gains tax rates and deferral with his IRA. Some qualifying dividends were taxed at that lower rate, too.
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But some of these owners are in for a rude awakening on their 2013 tax return when they realize that the changing tax law has turned their typically-advantageous deferral into a bit of a problem.
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Instead of getting a simple 1099 dividend form, MLP investors receive a more complex K-1 filing with varying degrees of tax deferral and sometimes even taxable income in multiple states.
Another subtle point that often eludes people who assume more tax deferral is always better: Any long-term capital gains he gets from fund distributions or from selling fund shares will be taxed at a low rate, 18% or 20%.
Tax deferral backfires when it converts dividends and long-term gains taxable at 15% into ordinary income taxable at 35%.
Unless the tax deferral is truly important, you might be better off investing in tax-efficient mutual funds or ETFs until you need the money, and then converting it into an immediate annuity.
With a stretch-out IRA you leave the account to, say, your kids, and they keep the tax deferral going over their own life expectancies, which could be decades.
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