Annuities

 

Many people get confused when they try to understand annuities. That is because there are so many types to choose from. There are also a wide variety of payment options you can select when you start receiving payments from your annuity. In addition, there are different methods of making annuity payments which are referred to as premiums. The two most common types of premiums methods you will see are:

Single Premium -The annuity is paid for with a one-time full payment.
Deferred Premium - The annuity is paid for with a series of payments which are usually made on a scheduled basis.

To get you started in your annuity education, we have selected a few basic types of annuities and have given a brief description of each one. Five of the most common types are:

 

Fixed Annuities¹

Fixed annuities earn a guaranteed interest rate for a specific time period. After the guarantee period has expired, a new interest rate is set for another particular term. The principal amount you put into an annuity is guaranteed as well. With having a guarantee of principal and interest, annuities sound similar to bank certificate of deposits. However, annuities are not backed by the Federal Deposit Insurance Corporation (FDIC) as CD’s are.

With an annuity, the security of your investment is directly related to the financial position of the insurance company that issues the annuity. That is why choosing the right company to purchase an annuity from is vital.

Give us a call today to learn more about fixed annuities and to allow us to help you find the right company that meets your needs.

 

 

Immediate Fixed Annuities


Immediate fixed annuities are designed for you to make a one-time, single premium payment in which you start receiving income payouts immediately, usually within one month of your initial premium payment.


There are many ways you can elect to receive payments from immediate fixed annuities.

Life payments - You receive income for the remainder of your life. However, if you die before receiving the full accumulated value, the remainder goes to the insurance company and not to your heirs.
Life with period certain payments - This plan provides a fixed payment for a specific number of years. Should you die before that period of time, your named beneficiary would receive the payment for the rest of designated time.
Joint and survivorship payouts - Joint payouts are also available allowing you to receive payments over the life of two individuals. In the event that something would happen one of the payees, the other would continue receiving the benefits.
Period certain payouts - Assures that your beneficiary will receive the payment should both joint payees die before the payment duration has been reached.

We know that with all of these choices and options available, deciding if an immediate fixed annuity is right for you can be a hard choice to make. Call for an appointment with one of our representatives, and allow us to assist you with that decision.


Deferred Fixed Annuities

Deferred fixed annuities will delay starting annuity payouts for a period of time. They are particularly beneficial if you have several years before retirement, because it gives you the opportunity to allow your investment to grow. Your money grows tax deferred, which means you pay no taxes on earnings until you begin to withdraw your money.

A deferred fixed annuity is probably not the best investment for money you may need for current or near future expenses. Most insurers have stipulations that the money must be invested for a certain number of years before you can withdraw it without incurring a penalty. If you withdraw or transfer the money to another investment before that time, most companies will charge what is know as a surrender charge. This surrender charge usually starts at a certain percentage, such as 7%, then decreases and eventually eliminates over time.

Call us today to see how you could possibly benefit from a deferred fixed annuity.


Tax-Sheltered Annuities

A tax sheltered annuity (TSA) is often referred to by its Internal Revenue Code, Section 403(b). TSAs are offered to certain tax-exempt organizations and to public educational institutions . They are designed as a supplement to an employer’s defined-benefit plan, or can stand alone.

Contributions to TSAs can be made by employees through a salary reduction agreement or by employers through non-elective deferrals. Since the contributions are pre-taxed, the amount you contribute is not reported as current income, meaning you may pay less federal income tax at the end of the contributing year.

Like with other types of retirement plans, earnings in tax sheltered annuities are tax deferred until they are withdrawn, usually at retirement. Withdrawals are subject to ordinary income tax, and if taken before age 59 1/2, my be subject to a federal income tax penalty.

Give us a call today to find out if you are eligible to contribute to a TSA.


403(b) Annuities

A 403(b) annuity is a tax-sheltered annuity offered to employees of certain organizations such as public schools, colleges and universities, churches, and public hospitals. Primary funding into a 403(b) annuity is made from employee salary deferral. However, while not required, employers can elect to match a portion of the contributions made by the employee. The principal money and earnings in these annuities are not taxed until distributed, typically at retirement.

Although, employees can choose their investments within an annuity, they cannot always pick the investment company that they invest with. Employers have to have a contract with an investment company in order for 403(b) annuities to be offered. This is typically determined by a certain number of eligible participation. Most employers have various contracts in place for their employees to choose from.

To learn more about 403(b) annuities or to find out what your choice of investment options are, give us a call today to schedule an appointment with one of our representatives.



¹Fixed Annuitiy Disclosure:  There is a surrender charge imposed generally during the first 5 to 7 year that you own the contract.  Withdrawals prior to age 59 1/2 may result in a 10% penalty, in addition to any ordinary income tax.  The guarantee of the annuity is backed by the financial strength of the underlying insurance company.