Tax Differences Between Equity Linked CDs and EIAs

Q. Jeff, thanks for the info on equity linked CD's versus EIA's. We were about to purchase an EIA. Help me understand the tax differences between these options.

I understand the EIA bought with after tax dollars has pretty low tax implications. What about the product bought through the bank? You know, I just somehow knew that buying a product through an insurance company could only be bad!!

Thanks for your advice on the net!

A. You're welcome. The commissions on EIAs are outrageous.

The tax implications aren't any different for an Equity Indexed Annuities vs an Equity Linked Certificate of Deposit. The growth on both will be taxed as ordinary income when withdrawn. This is actually one of the disadvantages of these products as compared to capital gains rates paid on investments like mutual funds, ETFs, stocks, etc.

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