Equity Indexed Annuities are a good option

Farm Forum

Tis the season… for taxes that is. As you read this you are probably smack dab in the middle of working on your taxes or have your appointments scheduled very soon. I’m sure you are quite aware that you can use IRA’s to help reduce your taxable income and have most likely utilized this valuable tool in the past. What I am finding is that a good number of folks are not aware of SEP IRA’s. In very simple terms; a SEP IRA allows to put away 25% of your taxable income up to a maximum amount of $50,000 for the past tax year. Therefore, you have a way in which to substantially reduce the amount you ultimately pay in Income Tax, as well as putting some of your hard earned profits away for yourself in the process.

Just ask your accountant or tax professional if this would be a good option for you. My role as a Financial Advisor is better served by providing you sound advice and safe financial vehicles in which to place these IRA contributions. It really doesn’t make much such sense to gamble with hard won profits after all the risk you have endured in the farming game to begin with. If you want to play around with some crazy money then so be it; retirement type funds are best suited in vehicles that will provide you a reasonable return without any unnecessary risk.

I have been recommending something that achieves this for the last 20 years-much to all of my clients’ satisfaction. Namely, Equity Indexed Annuities. These are not to be confused with Variable Annuities where the underlying investment is

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in mutual funds. Your money is still at risk here and with some pretty onerous charges as well. Nor are they traditional Fixed Annuities which pay a fixed amount of simple interest. Although they do pay better than CD’s-currently not much to get excited about.

An Equity Indexed Annuity ties your earnings to a Stock Market Index such as the S&P 500 with the better products having numerous choices of Indexes. Your money is never directly in the market, so therefore never at any risk. When your choice of Index(s) goes up, you make money. The most important thing to remember is that these gains are locked in no matter what the market does in the future. Should the market go down, each and every dollar of your principal and your past earnings are all 100% Guaranteed not to decrease. A down year can even turn out to be a very positive thing as your Index resets and you stand to make very good returns as the market corrects itself. There is no other option for your money that offers this unique ability to earn a very competitive rate of return as well as provide all of the safety and guarantees that they do.

I quite literally have never had a client move one single dollar out of one in favor of another investment option. This tells me something… they are happy with them! Makes me happy too knowing we have worked together to do a good job for them. Quite frankly most advisors and particularly those with more of a stock market mindset simply choose not educate you about Equity Indexed Annuities or find a way to skip over them in favor of their favorite mutual funds and the like. The reason being is that as previously stated, once money is put in them, it stays there and there are no further opportunities to continually move your money around. If you are looking for an IRA option that lets you sleep at night, EIA’s might just be the best choice for you.

Dennis Foster has been helping farm families for over 20 years. He welcomes questions and comments and can be reached at 605-887-3451 or 605-887-7069. His column is published the first Friday of each month.