An annuity is a contract with a life insurance company in which your money will grow tax deferred and paid to you or your beneficiary in either a lump sum or an income stream.
YES annuities can only be purchased by those of legal age (some annuities have a maximum issue age) and all annuities require the assets to be held in the account until 59 1/2. Any withdrawal prior to this age may result in a 10% federal tax penalty in addition to ordinary income tax. If the annuity is qualified, there is an additional age limit associated of 70 1/2. At this age, you are required to start your required minimum distribution.
A qualified annuity is established using pretax dollars. Such as those that come from an IRA or another company plan such as a 401(k), SEP, SIMPLE or 403(b).
Required minimum distribution (RMD) is associated with all qualified plans. Since tax has not been paid on the money inside a qualified plan, the IRS wants to ensure taxes will be paid starting at age 70 1/2 and is based on life expectancy. At that age, withdrawals must start or a 50% federal tax penalty may apply in addition to ordinary income tax.
Only If the annuity is qualified you will be required to start liquidations by 70 1/2. This is an IRS regulation for all qualified accounts, not just annuities. Failure to start RMD may result in a federal tax penalty of 50% in addition to ordinary income rates.
A non qualified annuity is established using post-tax dollars. Such as those found in a checking, savings or non-qualified CD.
Yes, but it does have to be a company plan for an employer you no longer work for. If your old company plan is already an annuity, you may have to do a 1035 exchange which will transfer those funds.
Yes, contributions can be made unless the annuity is a “single premium” annuity which only allows for one initial deposit. The individual annuity plan may place limits on when the contributions can be made.
The CD would need to be liquidated first. If the CD is post-tax this would be considered a non-qualified annuity. If the CD is also an IRA, this would be considered a qualified annuity.
Tax deferred growth, Guaranteed lifetime income payments and “riders” which are highly customizable.
A rider is an addition or an enhancement to the annuity itself. The owner may chose to leave an enhanced death benefit to an heir, may chose to help protect assets from inflation or other additional guarantees. Riders are highly customizable and there are commonly many riders to choose from within the annuity. Riders are available for an additional charge and may affect the interest that is credited to the account.
Yes, there are costs such as mortality and expense risk charges, policy fees, additional rider charges and other possible fees. Costs will vary from company to company and may be significant. Request information to better understand the differences or consult an insurance professional to help better understand your current annuity or potential purchase.
When an insurance company begins paying out the proceeds of an annuity, the annuity is said to be annuitizing, and the process is called annuitization. Do not annuitize without careful thought. Once an annuity is annuitized, you cannot reverse the annuitization or withdraw additional monies within the annuity. Annuitization effectively exchanges the cash in the annuity for a guaranteed income stream. Keep in mind partial annuitization options are available and should be reviewed carefully with your financial professional.
No, you do not have to annuitize to receive the guaranteed monthly income stream in many annuities available. By not annuitizing, this may allow for more flexibility within your annuity.
Yes, an annuity grows tax deferred.
This is not recommended since there is a 59 1/2 age limit associated and withdrawals prior to that age may be subject to a 10% federal tax penalty?
No, an annuity is not life insurance but annuities typically guarantee a death benefit of at least the premiums paid minus any withdrawals.
Yes, some annuities have a rider which pay your beneficiary an additional lump sum. Riders are available for an additional charge and may affect the interest that is credited to the account.
Yes, as long as the annuity is non-qualified.
Yes, you are allowed to have as many beneficiaries as you would like.
An immediate annuity is one in which you contribute your funds and immediately start receiving an income stream.
Guarantees are made by the insurance company and are backed by the claims paying ability of that company.
A bonus annuity pays a onetime bonus on the initial deposit placed into the annuity. Any bonus paid may reduce the interest rate credited over time or may have additional charges apply.
A Fixed Annuity is an annuity in which the premiums get invested into a fixed or guaranteed account. The fixed account will compound interest at that fixed rate that is guaranteed by the insurance company. Since the interest is guaranteed, this may be suitable for someone who is not inclined to risk.
A Fixed Index Annuity is a deferred or immediate annuity contract issued by an insurance company that has a minimum guaranteed interest rate and earnings that accumulate at a rate based upon a formula linked to one or more published indexes such as the Standard and Poor’s 500. A Fixed Index Annuity does not participate in the market or any stock index. There are additional factors to consider regarding these types of annuities, such as caps, floors and participation rates. Guarantees are based on the claims paying ability if the issuing insurance company. Request information to better understand these and other annuity types.
Possibly. There are many features to an annuity that need to be understood along with personal goals that need to be assessed. Contact us to meet with a professional or to request more information.