OK. You did thorough research, identified investments that had good earning prospects, bought them at a great price, and now you're ready to sell them for a substantial profit. Hats off! That's what good investing is all about -- right?

Well, not exactly.

Most investors work hard to ferret out good profit opportunities, but do little to prevent large chunks of their investment profits from going to Uncle Sam. The fact is that "great investing" involves skillful risk/reward decisions as well as sheltering techniques that


the wealth you create. Smart investing entails tax-efficiency techniques -- taking advantage of the legal tax-deferral or tax-avoidance benefits that the IRS has created.

Most U.S. investors know that 401(k) plans and IRAs defer -- or, in the case of Roth IRAs, enable you to outright avoid -- taxes on investment gains. But IRAs, 401(k)s and similar retirement savings plans have distinct limitations.

For 2006, for example, you can invest up to $15,000 in a 401(k) plan (plus an additional $5,000 "catch-up amount" if you are age 50 or older). You can invest up to $4,000 in a traditional or Roth IRA for the year, or up to $5,000 in total if you are age 50 or older. (Click here for a review of the

Six Common 401K Missteps.)

By using IRAs, 401(k) plans and similar retirement savings accounts, you can prevent or at least defer tax amputations of your investment gains. You can, because of the compounding effect, very significantly improve your long-term returns.

Not surprisingly, millions of American investors harness the power of IRAs and 401(k)s for tax deferrals and important compounding benefits. However, many fewer people use annuity structures that give even more powerful deferral and income-for-life benefits.

Keeps on Giving

From Greek and Latin word for "annual stipend," an "annuity" is an investment structure that enables you to defer taxes on

any amount

of investment money. You buy or set up an annuity with an annuity insurance company. And there are a number of different kinds of basic annuity structures from which to choose.

Immediate annuities begin paying you annual, monthly or quarterly payments right away. You generally pay the insurer a lump sum, and it immediately begins to make periodic payments to you.

A deferred annuity is a structure that has an accumulation phase before it begins paying out any benefits.

For example, you may decide to invest in a deferred annuity today, make a single payment into the structure as well as periodic monthly payments into it over the next 10 years, but only begin receiving the benefits in 10 years' time.

There are, in turn, two kinds of deferred annuities. A deferred


annuity pays you a fixed return that is set by the insurer. You personally do not make any investment decisions when you own a deferred fixed annuity. A deferred


annuity enables you to make investment choices and receive the proceeds from them. Deferred variable annuities, in particular, have a lot of appeal.

When you invest in a deferred variable annuity, you will normally be able to make a number of different investments within the annuity structure.

These are generally investments in mutual or index funds, as opposed to individual stocks or bonds. Some annuity insurers give you access to as many as 60 or more different high-quality funds, and you can elect to put your money in any number of them and periodically change your holdings.

Different annuity insurers have products with other benefits as well. Many companies give a "death benefit," meaning that the capital you put into the structure will be paid to your heirs in the event of your death.

Other insurers are willing to guarantee your principal amount no matter how the stock and bond markets perform. That kind of benefit, of course, costs extra, and not every insurer offers it.

Some annuity contracts likewise give you the option of investing in deposit-like placements that guarantee some fixed amount of return for one or three years.

The cost of these tax-deferred structures varies substantially from one insurer to the next.


, the retirement specialist and fund supermarket, offers a bare-bones annuity product that has the industry's lowest cost -- 0.25% a year. It permits you to invest in 45 different Fidelity funds. But the product is very inexpensive precisely because it does not provide any benefit features (like the death benefit) that other insurers routinely offer. Still, it's worth consideration.

Northwestern Mutual

, which has Moody's as well as Standard and Poor's highest ratings of financial strength, has a higher-cost product that permits you to invest in 24 funds from eight different fund families. It is a substantially more sophisticated product with many appealing benefit features. And the financial strength of that insurer is a very important consideration.

I happen to like both of these companies for their very different annuity products. There are others that you may also want to consult, including

Charles Schwab

(SCHW) - Get Report

. All in all, the cost for these products ranges from 0.25% to some 3% or more per annum, depending on the financial ratings and benefits provided.

If you have savings outside of a 401(k) or IRA account, want to tax-shelter more of your investment gains and want to accelerate the compounded growth of your wealth, it's time to give annuities serious thought.

Three important caveats:

  • Some 401(k) or IRAs allow you to invest in an annuity. That generally makes little sense. Since a 401(k) or IRA structure already gives you the benefit of a tax deferral, you will normally gain little advantage having a tax-sheltered annuity inside such a structure. If you currently have a "shelter within a shelter," consult a tax specialist about the wisdom of making a change.
  • When you put your money into an annuity, you are entrusting your money to a particular insurer. You want to work exclusively with annuity companies that have the highest, "A"-level ratings of financial strength. Ask the insurers you are considering for their ratings from three different rating groups, and entrust your investment to an "A"-rated company exclusively.
  • The prices of an annuity can vary substantially, depending on the financial strength of the insurer and the kinds of annuity features or benefits you require. You have to do some homework.

Take time to learn more about annuity structures and the kinds of benefits and powerful tax advantages they offer. There are a number of Internet sites that explain deferred variable annuities in an objective fashion. Try visiting the

Security and Exchange Commission's

Web site discussion on the subject. Make a list of the kinds of annuity features that are of interest to you, then contact three annuity insurers to compare their pricing for a product having the features you want.

If you have a financial planner, talk over annuities as a structural option. Or learn more about annuities on your own. I would strongly urge you to tax-shelter as much of your wealth as you can. That's smart investing! And annuities are an important and skillful way of tax-sheltering and compounding gains.

Jim Schlagheck is a wealth management professional who has counseled ultra-high-net-worth families, endowments and pension funds in the U.S., Europe, and the Middle East. He is a former senior executive of American Express Bank, UBS AG, Bank Julius Baer, and TAIB Bank. During his career, Schlagheck launched a family of mutual funds (now holding $4 billion), led teams of financial planners and investment advisers based in New York, Bahrain, and Geneva, Switzerland, and helped many high-profile clients to protect and enlarge their wealth. Jim has a blog on investment topics

www.invest-blog.com and is the author of "Show Me The Money!", a soon-to-be-published book that synthesizes his novel views about investing for retirement.