Why an Annuity?
- Contractually Guaranteed Interest Rate
- Tax-Deferred Growth
- Leave Inheritance to Heirs
- Income You Can’t Outlive
There are two phases of an annuity. The Accumulation and Deferral Phase guarantees interest rates in exchange for premium. Deferred annuities are allowed to accumulate interest on interest, while deferring income taxes until the interest is withdrawn
Next there is the Payout Phase, which happens when the policyholder decides to stop accumulating interest, the annuity can provide several payment options, one of which includes a lump sum.
What types of funds work with annuities?
- Non-qualified funds (CD type funds)
- IRAs (Roth, Traditional, SEP, SIMPLE)
- 401(k)’s (can be transferred into an IRA)
- Remember this is a long-term savings vehicle
The IRS allows interest to accumulate in deferred annuities income tax free, so you don’t pay income taxes until you withdraw the interest.
If withdrawn prior to age 59 ½, the IRS will assess an additional 10% penalty tax, so always check with a certified tax advisor before taking any distributions from an annuity.
Fixed deferred annuities have a minimum guaranteed interest rate stated in the contract. Which means you are contractually guaranteed never to earn less than that rate as long as you keep the policy. It’s important to remember that contracts vary, but some contracts guaranteed rate is set as high as 4%.
If you need access to the money, most Deferred Annuity Contracts allow for withdrawals without surrender penalties* prior to annuitization.
Some Deferred Annuity Contracts have Hardship Provisions that allow you to withdraw from your Annuity Free from Surrender Penalties* prior to annuitization if you are:
- diagnosed with a terminal illness
- confined to a nursing home
- laid off from your job
*If you withdraw from your annuity, you may have to pay taxes on all or a portion of the amount withdrawn. It’s always best to check with a tax professional.
Whether annuities are right for you and what level of risk is appropriate will depend on your financial circumstances. You’ll also need to carefully consider the tax implications, particularly if you want to retire early.
Contact us today to discuss your annuities options.