Deferred annuity alternatives

My wife and I are putting funds in a tax- sheltered deferred annuity with interest currently at 8.25 percent. We are looking at the possibility of withdrawing a part of the funds for investment in higher-yield, inflation-secure instruments. Are there any investments that would enable us to continue to defer the tax liability? Or, how about real estate depreciation? J.M

Your deferred annuity plan would permit you to withdraw your own contributed funds, since they were after-tax dollars originally. However, other than municipal bonds or municipal bond funds that provide tax-free interest, I know of no other hiding place for your funds that would generate more tax-free income. AT the moment the tax-free bonds could be a better investment than the deferred annuity, because tax-free rates are about the same as or higher than the 8.25 percent deferred annuity interest, and that income will be taxed eventually.

You could, as you suggest, buy income- producing real estate to gain the benefit of depreciation, but at today's prices, interest on mortage money (if you can find it), and potential income from property, you can expect a negative cash flow for two or three years -- possibly longer. Unfortunately, in our present economic enviroment few one's funds, without undue risk, and to receive income equal to inflation.