The Paragon Asset Protection and Deferred Variable Annuity gives the policyholder the ability to carry out a self-directed investment strategy on a tax-advantaged basis with far more investment options than are currently available with conventional variable annuities in the United States. As long as the policyholder’s funds remain invested in the annuity, there is no current U.S. tax liability to the investor. A withdrawal from the annuity is taxable to the holder as ordinary income to the extent gains have been realized in the account, with the remainder generally treated as a tax-free return of capital. As with all annuities, any withdrawal before age 59½ is subject to a 10% penalty tax on the gains in the account. The policyholder is permitted to direct that the separate account be invested in a number of private investment funds or through one or more independent investment managers. A policyholder is not permitted to make specific investment decisions for the separate account, but may redirect the investment strategy of the account at any time to another fund or replace the investment manager, with no tax consequences.
The following table sets out the significant benefits of tax-deferred compounding, assuming that taxes are deducted annually at the rate of 34% for the taxed numbers.