Tax Strategy 1: Reduce Current Tax Bill with Reinvestment of Interest

If you don’t need the interest income for living expenses, the simplest strategy to reduce current income taxes is to simply reinvest your interest. As long as you leave your interest in the CD-type annuity, you owe no taxes. In fact, you won’t even receive a 1099 at the end of the year.

Tax deferral is a powerful strategy for enhancing your financial security. Think of tax deferral this way – the money you would have sent to the government in taxes instead stays in your account and earns interest for you.

For people who pay tax on their Social Security retirement benefits, the tax savings can be even greater. Since deferred annuity interest is not used in the IRS’s calculation (to determine how much of their Social Security benefits are taxable), many people can lower or even eliminate the income tax on their Social Security benefits by moving a portion of their interest income portfolio to CD-type annuities and reinvesting the interest.