After-tax value of annuities

Authors

  • Stephen M. Horan Professional Education Content, CFA Institute, Charlottesville, VA
  • Thomas R. Robinson Education Division, CFA Institute, Charlottesville, VA

DOI:

https://doi.org/10.61190/fsr.v17i3.4916

Keywords:

Tax-deferred accounts, Tax-efficient asset allocation, After-tax value, Annuities

Abstract

This paper adds to the growing literature on after-tax asset valuation and asset allocation by developing a model to value annuities on an after-tax basis. Qualified and non-qualified annuities are shown to be equivalent to a tax-deferred account (like a traditional IRA) plus a cost basis tax shield, if any. Viewed in this light, the after-tax value of an annuity decreases as the investment horizon increases, but is independent of the risk of the underlying investment.

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Published

2008-09-30

Issue

Vol. 17 No. 3 (2008): FSR Fall 2008

Section

New Original Submission

License

Copyright (c) 2008 Academy of Financial Services

Creative Commons License

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This license allows the author to remix, tweak, and build upon the original work non-commercially. The new work(s) must be non-commercial and acknowledge the original work.

How to Cite

After-tax value of annuities. (2008). Financial Services Review, 17(3), 169-184. https://doi.org/10.61190/fsr.v17i3.4916