Common Tax-Avoidance Vehicles Misunderstood

Many people presume that wealthy investors know the tricks of the trade when it comes to reducing taxes.  In a study by Spectrem Perspective, titled "Tax Planning and the Affluent Investor", it was discovered that over 70% of affluent investors had little or no knowledge of tax shelters.  According to a recent Spectrem report the Millionaire Investor Index lost its gains from September to October(2007), falling 11 points, showing anxiety about the economy in an overall general sense.  These statistics were just released December 2007, furthermore, the majority of these investors have little understanding of many of the most common vehicles used to reduce taxes.

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For example, the report found that six out of 10 affluent investors had little or no knowledge of Section 529, educational savings plans, annuities, in-kind charitable contributions and KEOGHS. The other blind spots included tax-exempt bonds, tax-free annual gifts, cash-value insurance, and SEPs or IRAs. But, the report did find that most of the affluent investors were aware of company-sponsored retirement accounts, 401(k) or 403(b) plans, and financial charitable contributions.

Catherine S. McBreen, managing director of Spectrem Group, stated "There's a widespread assumption that wealthy individuals are better at sheltering themselves from taxes than the general populous. However, it turns out that even affluent investors have a substantial lack of understanding when it comes to tax avoidance.

These investors may be missing out on important opportunities to save tax dollars because they simply aren't up to speed on many of the most well-known approaches, including Section 529 plans, annuities and in-kind charitable giving."In fact, the percentage of affluent investors turning to accountants as their primary financial advisors stood at 28%, second only to full-service brokers (29%) and ahead of investment advisors (22%) and financial planners (16%). This reflects the importance of tax-planning advice as part of these investors' overall approach to managing their wealth.

The recently released report by Spectrem Perspective is based on survey responses from 500 affluent households, which are defined as those with more than $500,000 in investable assets, along with information from Spectrem's "2006 Affluent Investor" quantitative report. The survey data was gathered from telephone interviews from December 2005 through January 2006 and have a margin of error of plus or minus 6%.