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Annuities are long-term rather than short-term saving products. Unlike
CDs, annuity funds are invested by the insurance company for a longer term,
generally resulting in higher yields. And while most annuities apply
charges to withdrawals during a specific “surrender” period, annuities also
offer a variety of liquidity features, including payments of interest earnings,
10% penalty-free annual withdrawals, loans and "hardship" withdrawals
under special circumstances such as a nursing home stay or a terminal condition.
There is often an Unemployment Rider as well
There are many features and characteristics that are important when choosing
an annuity, such as no required annuitization, full account value
at death, and 100% free withdrawal per year of accumulated value. Other important
characteristics may include carrier financial strength as well as the
contractual minimum guarantee.
In
general, annuities have the following attractive features:
Tax deferral
on investment earnings
Investment earnings in
annuities aren’t taxable until you withdraw money — not paying the
taxes until you actually withdraw the money allows the account to grow
larger.
An array of investment options
Tax free exchanges into new policies can be made to allow the interest that
has been earned to continue to grow without having to pay taxes until the
money is withdrawn for use.
Lifetime income
A lifetime immediate annuity turns an investment into income payments
that you cannot outlive.
Benefits to your heirs
If you buy a “guaranteed period” with the immediate annuity,
it commits the insurance company to continue payments after you die to
one or more beneficiaries you designate should you die before for the stated
period ends. Annuity benefits from properly structured annuities will pass
directly to the beneficiaries and do not have to go through the long and
drawn out probate period.
Triple Compounding
One of a tax-deferred annuity’s greatest advantages is
the benefit of triple compounding. Income taxes on a tax-deferred annuity
are due only when you make a withdrawal or begin receiving an income stream
from your annuity, usually during retirement when most retirees are in a
lower tax bracket. As a result, interest builds upon 1) your initial principal,
2) your earned interest, and 3) the money you would have otherwise paid in
annual income taxes — thus triple compounding.
FIXED ANNUITIES MAY BE APPROPRIATE IF YOU...
| Are averse to risk |
You may like the conservative features
of a fixed annuity (stability of principal, interest guarantee, fixed
income stream, etc.) |
| Are concerned about taxes |
Fixed annuity earnings are not taxed until withdrawal or surrender.* |
| Want emergency access to your money |
A certain percentage of the premium or account
balance of a fixed annuity is typically available free from surrender
charges, however withdrawals of gain are taxed as ordinary income and,
if taken prior to age 59 ½,
may be subject to an additional 10% federal tax penalty. Most annuities
have surrender charges in the early years of the contract.* |
| Wish to minimize estate administration headaches for your loved ones |
Named beneficiaries on a fixed annuity contract
generally receive death proceeds without the expense and delay of probate,
however they are still subject to ordinary income tax on any gains. |
*Distributions taken prior to annuitization are
generally considered to come from the gain in the contract first. If the
contract is tax-qualified, generally all withdrawals are treated as distributions
of gain. Withdrawals of gain are taxed as ordinary income and, if taken
prior to age 59½,
may be subject to an additional 10% federal tax penalty. Most annuities have
surrender charges in the early years of the contract. Withdrawals may decrease
the value of the benefits provided by the fixed annuity. Other insurance
company costs are taken into account when setting the fixed annuity’s
interest rate.
While annuities are not covered by the FDIC,
NCUA/NCUSIF or by any federal government agency (like stocks or mutual funds),
there is no limit to the additional protections the issuing insurance company
may provide.
Rates are current as of the date unless indicated and are subject
to change without notice. Please call to verify current rates and product
details.
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