Annuities are contracts issued by insurance companies which allow investors to defer taxation on investment income until withdrawal. Most modern annuities can be withdrawn in periodic payments or a lump sum, providing additional tax deferral opportunity. No taxes are paid on the interest accumulation in an annuity until money is withdrawn by the owner. The government allows annuities this favored tax savings to promote Americans to save! With this privilege of tax deferral also comes an understanding that money placed into an annuity is primarily for long term savings.
Common Types of Annuities:
Tax-deferred means postponing your taxes on interest earnings until a future point in time. In the meantime you earn interest on the money you're not paying in taxes. You can accumulate more money over a shorter period of time, which ultimately will provide you with a greater income.
What is a Fixed Tax-Deferred Annuity?
A Fixed Tax-deferred annuity, also referred to as a tax-deferred annuity, is a contract between you and an insurance company for a guaranteed interest bearing policy with guaranteed income options. The insurance company credits interest, and you don't pay taxes on the earnings until you make a withdrawal or begin receiving an annuity income. Your annuity contract earns a competitive return that is very safe. These are similar to bank CDs, except that you don't pay taxes on your earnings until withdrawal. This tax deferral can amount to large savings over a bank CD.
Many people today are using tax-deferred annuities as the foundation of their overall financial plan instead of certificates of deposit or savings accounts. Although CD's and Annuities are very similar there are significant differences between the two. The most important difference is that annuities allow for the deferral of the taxes due on the interest earned until the interest is withdrawal! By postponing the that tax width a tax-deferred annuity, your money compounds faster because you can earn interest on dollars that would have otherwise been paid to the IRS. Later, if you decide to take a monthly income, your taxes can be less because they will be spread out over a period of years. Like Certificates of Deposits, annuities have a penalty for early surrender, however most annuity contracts have a liberal withdrawal provisions.
What is a Single Premium Immediate Annuity?
A Single Premium Immediate Annuity is a contract between you and an insurance company. By paying in a lump sum of money you are guaranteed to receive a series of payments over a period of time. The amount of the payment is determined by both the current interest rate at the time your contract is issued and by choices you make from a wide variety of payment options. Once your contract is issued, your payments are fully guaranteed for the period of time you have chosen.
If you use after-tax funds to purchase a single premium immediate annuity, the income payments you receive are only partially taxable. The non-taxable portion of each payment is a level percentage that represents the return of principal over the life of the contract. Depending on your age and the payment option you chose, this percentage will vary. If you are using tax-qualified funds (IRA, TSA, 401k money for example) to purchase your Single Premium Immediate Annuity, the payments you receive are generally fully taxable as you receive them because they represent funds that have not been taxed before.
Single Premium Immediate Annuities offers a variety of options so you may taylor your income schedule to suit your needs. You can chose to receive payments, monthly, quarterly, semiannually or annually. The payment options include:
What is a Tax Sheltered Annuity?
A tax-sheltered annuity, or TSA, is a long term
retirement plan that provides a systematic, tax sheltered way to
accumulate funds for retirement.
A TSA reduces your current taxable income.
A TSA offers a high degree of financial security.
Having a TSA doesn't reduce other retirement benefits?
Variable Annuities provide the advantages of traditional fixed annuities with the potential returns that are available by investing your money in the stock market. The investment options that you may chose from in a variable annuity are referred to as sub accounts. These sub accounts are structured as either mutual funds or as segregated investment portfolios that are managed by professional investment managers.
Family of Funds
Equity Index Annuities are relatively new in the investment world. These annuities are a hybrid of fixed and variable annuities.
The Equity Index Annuity Offer:
Guarantee - No Loss Provision
Long term stock marker growth
Glossary of Terms
The following are terms used in describing what an Equity Index Annuity is and how the interest rate is calculated.
"Standard & Poor's", "S&P 500", "Standard & Poor's 500" and "500" are trademarks of The McGraw-Hill Companies, Inc. and have been licensed for use by companies offering Equity Index Annuities. The product is not sponsored, endorsed, sold or promoted by Standard & Poor's and Standard & Poor's makes no representations regarding the advisability of purchasing the product.
As you can see there are many types of annuities. Although the basic
structure of annuities is fairly uniform throughout the industry each
company designs their own product. Because of this products vary
widely and we recommend you visit with a specialist to see if an
annuity is right for you.
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