Swiss annuities: A long way to go for tax advantages

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A: A Swiss annuity is basically a Swiss bank account wrapped in an annuity contract, says John Dietz, a senior adviser at Trustmakers.com. Such annuities allow owners to invest in foreign stocks, bonds, and mutual funds in a tax-favored environment.

Owners typically invest a lump sum, which then is placed in various subaccounts. Each one can have a different investment strategy (aggressive, moderate, or conservative).

Swiss variable annuities have no guarantee on returns, but they are sheltered from income and capital-gains taxes during their accumulation phase and partially sheltered from income taxes during the payout phase.

While a Swiss annuity sounds a lot like its US cousin, Mr. Dietz notes some differences:

• Fees. Many investors are put off by annuity fees, which can easily chew up 2 percent annually. Some Swiss variable annuities come with maximum annual charges of only 0.6 percent.

• Liquidity. With some Swiss annuities, the surrender charge only lasts one year. American annuities can ding you for seven to 10 years.

• Asset protection. If properly structured, assets in a Swiss annuity can be completely protected from creditors.

• Privacy. A Swiss annuity is not reportable as a foreign financial account, and no US excise taxes are incurred. Information won't be released unless you have committed a crime under Swiss law or in the event of tax evasion.

Most financial experts agree that people should invest in foreign markets to counter any downturn in the US markets. A Swiss annuity offers this, but bear in mind that your money is a long way from home, and perhaps with a company that doesn't provide a toll-free number or other forms of instant access.

Lastly, Dietz notes that finding someone you can trust with information on Swiss annuities can be difficult. A number of companies market them on the Internet, but you'll need to dig further to determine if they are on the up and up.

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