What is an Annuity?
Simply, an annuity is an agreement (contract) between an organization (insurance company) to pay another an agreed upon benefit. The benefit can be in the form of periodic payments or a lump sum. Annuities are issued by insurance companies and are regulated by state and generally federal laws.
Life Insurance companies issue annuities and are contractually guaranteed by the insurance company and most life insurance companies sell annuities. A deposit is made to an insurance company either lump sum or periodic payments. The type of annuity you own determines whether your money earns a fixed amount (interest or equity linked and indexed) or an amount that depends on market volatility in equities and bonds.(variable annuity) At a designated time chosen by you, the insurance company begin to make regular distributions from the annuity's account. Other options include leaving your funds intact and never touching them, or you may remove your funds in a lump sum.
Annuities have numerous benefits but the biggest is the tax deferral aspect of the contract. Your money grows tax deferred until you withdraw it. The interest is credited to your annuity and the tax liability is deferred until the funds are touched. The IRS does affect a penalty in the event any funds are removed prior to age 59½, normally a 10 percent early withdrawal penalty.
There are several different kinds of annuities. Some of the more common types of the annuities:
• Single premium immediate annuity: You pay the insurance company a lump sum now and begin to receive withdrawal distributions in approximately one month and for a period of time you specify. The amount you receive will vary according to the length of time the payments are to last and whether anyone will receive the remaining balance at your death. Your money grows at a fixed interest rate, set each year by the insurance company.
• Single premium deferred annuity: You pay the insurance company a lump sum now and defer receiving withdrawals until later. The amount of those distributions will depend on the value of your account at the time your payments begin, the length of time the payments are to last, and whether anyone will receive the remaining balance at your death. Your money grows at a fixed interest rate, set each year by the insurance company.
• Annual premium deferred annuity: You send money to the insurance company usually monthly, quarterly, or annually. Your money earns a fixed interest rate, set each year by the insurance company, and you defer your withdrawals to a later date.
• Variable annuity: This type of contract is a vehicle for equity investments. You can do a one-time deposit or contribute throughout the life of the contract. You have choices as to how your money is invested in an offering of mutual funds, and you may invest conservatively or aggressively. The growth of your account value will vary, depending on your choice of investments.
There are many categories of annuities. They can be classified by:
- Nature of the underlying investment – fixed or variable
- Primary purpose – accumulation or pay-out (deferred or immediate)
- Nature of pay-out commitment – fixed period, fixed amount, or lifetime
- Tax status – qualified or nonqualified
time chosen by you, the insurance company begin to make regular distributions from the annuity's account. Other options include leaving your funds intact and never touching them, or you may remove your funds in a lump sum.
Annuities have numerous benefits but the biggest is the tax deferral aspect of the contract. Your money grows tax deferred until you withdraw it. The interest is credited to your annuity and the tax liability is deferred until the funds are touched. The IRS does affect a penalty in the event any funds are removed prior to age 59½, normally a 10 percent early withdrawal penalty.
There are several different kinds of annuities. Some of the more common types of the annuities:
• Single premium immediate annuity: You pay the insurance company a lump sum now and begin to receive withdrawal distributions in approximately one month and for a period of time you specify. The amount you receive will vary according to the length of time the payments are to last and whether anyone will receive the remaining balance at your death. Your money grows at a fixed interest rate, set each year by the insurance company.
• Single premium deferred annuity: You pay the insurance company a lump sum now and defer receiving withdrawals until later. The amount of those distributions will depend on the value of your account at the time your payments begin, the length of time the payments are to last, and whether anyone will receive the remaining balance at your death. Your money grows at a fixed interest rate, set each year by the insurance company.
• Annual premium deferred annuity: You send money to the insurance company usually monthly, quarterly, or annually. Your money earns a fixed interest rate, set each year by the insurance company, and you defer your withdrawals to a later date.
• Variable annuity: This type of contract is a vehicle for equity investments. You can do a one-time deposit or contribute throughout the life of the contract. You have choices as to how your money is invested in an offering of mutual funds, and you may invest conservatively or aggressively. The growth of your account value will vary, depending on your choice of investments.
There are many categories of annuities. They can be classified by:
time chosen by you, the insurance company begin to make regular distributions from the annuity's account. Other options include leaving your funds intact and never touching them, or you may remove your funds in a lump sum.
Annuities have numerous benefits but the biggest is the tax deferral aspect of the contract. Your money grows tax deferred until you withdraw it. The interest is credited to your annuity and the tax liability is deferred until the funds are touched. The IRS does affect a penalty in the event any funds are removed prior to age 59½, normally a 10 percent early withdrawal penalty.
There are several different kinds of annuities. Some of the more common types of the annuities:
• Single premium immediate annuity: You pay the insurance company a lump sum now and begin to receive withdrawal distributions in approximately one month and for a period of time you specify. The amount you receive will vary according to the length of time the payments are to last and whether anyone will receive the remaining balance at your death. Your money grows at a fixed interest rate, set each year by the insurance company.
• Single premium deferred annuity: You pay the insurance company a lump sum now and defer receiving withdrawals until later. The amount of those distributions will depend on the value of your account at the time your payments begin, the length of time the payments are to last, and whether anyone will receive the remaining balance at your death. Your money grows at a fixed interest rate, set each year by the insurance company.
• Annual premium deferred annuity: You send money to the insurance company usually monthly, quarterly, or annually. Your money earns a fixed interest rate, set each year by the insurance company, and you defer your withdrawals to a later date.
• Variable annuity: This type of contract is a vehicle for equity investments. You can do a one-time deposit or contribute throughout the life of the contract. You have choices as to how your money is invested in an offering of mutual funds, and you may invest conservatively or aggressively. The growth of your account value will vary, depending on your choice of investments.
There are many categories of annuities. They can be classified by:
time chosen by you, the insurance company begin to make regular distributions from the annuity's account. Other options include leaving your funds intact and never touching them, or you may remove your funds in a lump sum.
Annuities have numerous benefits but the biggest is the tax deferral aspect of the contract. Your money grows tax deferred until you withdraw it. The interest is credited to your annuity and the tax liability is deferred until the funds are touched. The IRS does affect a penalty in the event any funds are removed prior to age 59½, normally a 10 percent early withdrawal penalty.
There are several different kinds of annuities. Some of the more common types of the annuities:
• Single premium immediate annuity: You pay the insurance company a lump sum now and begin to receive withdrawal distributions in approximately one month and for a period of time you specify. The amount you receive will vary according to the length of time the payments are to last and whether anyone will receive the remaining balance at your death. Your money grows at a fixed interest rate, set each year by the insurance company.
• Single premium deferred annuity: You pay the insurance company a lump sum now and defer receiving withdrawals until later. The amount of those distributions will depend on the value of your account at the time your payments begin, the length of time the payments are to last, and whether anyone will receive the remaining balance at your death. Your money grows at a fixed interest rate, set each year by the insurance company.
• Annual premium deferred annuity: You send money to the insurance company usually monthly, quarterly, or annually. Your money earns a fixed interest rate, set each year by the insurance company, and you defer your withdrawals to a later date.
• Variable annuity: This type of contract is a vehicle for equity investments. You can do a one-time deposit or contribute throughout the life of the contract. You have choices as to how your money is invested in an offering of mutual funds, and you may invest conservatively or aggressively. The growth of your account value will vary, depending on your choice of investments.
There are many categories of annuities. They can be classified by:
- Nature of the underlying investment – fixed or variable
- Primary purpose – accumulation or pay-out (deferred or immediate)
- Nature of pay-out commitment – fixed period, fixed amount, or lifetime
- Tax status – qualified or nonqualified
- Premium payment arrangement – single premium or flexible premium
Numerous other benefits excise in the contractual guarantees of an annuity. These benefits can include:
• Avoidance of probate with the funds being delivered immediate and without delay to a named beneficiary.
• Income options exist to provide numerous choices in how and for how long to receive funds. Lifetime income is always an option and is generally available on all annuity contracts.
• In some states, the proceeds from an annuity are protected from creditors. The rules governing this protection vary from state to state.
• Safety and security is a solid reason for considering an annuity. Numerous guarantees are in place to assure the annuity owner that their funds are guaranteed.
When considering an annuity make certain you fully understand the contractual features of the contract including any surrender penalty period and how the interest (yield) is calculated. Some variable annuities also contain fees and expense charges. Make certain you fully understand them.Nature of the underlying investment – fixed or variable
- Primary purpose – accumulation or pay-out (deferred or immediate)
- Nature of pay-out commitment – fixed period, fixed amount, or lifetime
- Tax status – qualified or nonqualified
- Premium payment arrangement – single premium or flexible premium
Numerous other benefits excise in the contractual guarantees of an annuity. These benefits can include:
• Avoidance of probate with the funds being delivered immediate and without delay to a named beneficiary.
• Income options exist to provide numerous choices in how and for how long to receive funds. Lifetime income is always an option and is generally available on all annuity contracts.
• In some states, the proceeds from an annuity are protected from creditors. The rules governing this protection vary from state to state.
• Safety and security is a solid reason for considering an annuity. Numerous guarantees are in place to assure the annuity owner that their funds are guaranteed.
When considering an annuity make certain you fully understand the contractual features of the contract including any surrender penalty period and how the interest (yield) is calculated. Some variable annuities also contain fees and expense charges. Make certain you fully understand them. Nature of the underlying investment – fixed or variable.
- Primary purpose – accumulation or pay-out (deferred or immediate)
- Nature of pay-out commitment – fixed period, fixed amount, or lifetime
- Tax status – qualified or nonqualified
- Premium payment arrangement – single premium or flexible premium
Numerous other benefits excise in the contractual guarantees of an annuity. These benefits can include:
• Avoidance of probate with the funds being delivered immediate and without delay to a named beneficiary.
• Income options exist to provide numerous choices in how and for how long to receive funds. Lifetime income is always an option and is generally available on all annuity contracts.
• In some states, the proceeds from an annuity are protected from creditors. The rules governing this protection vary from state to state.
• Safety and security is a solid reason for considering an annuity. Numerous guarantees are in place to assure the annuity owner that their funds are guaranteed.
When considering an annuity make certain you fully understand the contractual features of the contract including any surrender penalty period and how the interest (yield) is calculated. Some variable annuities also contain fees and expense charges. Make certain you fully understand them. Premium payment arrangement – single premium or flexible premium
Numerous other benefits excise in the contractual guarantees of an annuity. These benefits can include:
• Avoidance of probate with the funds being delivered immediate and without delay to a named beneficiary.
• Income options exist to provide numerous choices in how and for how long to receive funds. Lifetime income is always an option and is generally available on all annuity contracts.
• In some states, the proceeds from an annuity are protected from creditors. The rules governing this protection vary from state to state.
• Safety and security is a solid reason for considering an annuity. Numerous guarantees are in place to assure the annuity owner that their funds are guaranteed.
When considering an annuity make certain you fully understand the contractual features of the contract including any surrender penalty period and how the interest (yield) is calculated. Some variable annuities also contain fees and expense charges. Make certain you fully understand them.