By contrast, tax-efficient funds reduced taxable distributions in mutual funds to just 1.2 percent annually. There are several ways to keep investment taxes to a minimum. You can also invest in low-portfolio turnover stock funds. These funds typically invest in undervalued stocks and hold on to them for at least five years. The average cost of a tax-deferred variable annuity is 2 percent.
Many variable annuities have back-end surrender charges.
But the tax-managed funds are low cost and liquid. With a variable annuity, your clients are trading capital gains for ordinary income when they take distributions from an annuity. Since tax-efficient funds are liquid, investors only pay capital gains if they sell fund shares. Individuals who want to keep their taxable equity fund distributions to a minimum may consider the Vanguard Tax Managed Funds, a series of three no-load mutual fund portfolios. The expenses are just 20 basis points.