An annuity is a fixed or variable contract between an individual and an insurance company that puts savings to work for you over the long-term with tax-deferred earnings. Annuities are popular investment vehicles because they allow you to shelter more money than most other options that offer tax advantages.
Annuities offer many benefits:
- Tax-deferred growth - Because your money grows faster due to tax-deferred compounding, your investment, interest and tax savings all earn interest.
- Lifetime income - You can choose to receive income from your annuity for life and can set the payout to cover your spouse's lifetime as well.
- Penalty - free withdrawals - Many annuities permit tax-free withdrawals for nursing home care, health care costs and other hardships. You might also be able to withdraw a percentage of your contract value each year or to withdraw interest earnings for emergencies.
- Probate avoidance - The annuity contract takes precedence over all other legal documents, allowing the annuity to go directly to the beneficiary and bypassing the probate process.
- Guaranteed death benefit - Many variable annuities provide a guaranteed death benefit. Fixed annuities guarantee payment of the current contract value to the beneficiary at the time of death.
With fixed annuities, the amount you invest is guaranteed to earn a set rate of interest for a specific time, usually from one to five years. Your principal balance is safe because the insurance company assumes the investment risk.
- Guarantees are based on the claims-paying ability of the issuer.
Variable annuities are invested in professionally managed sub-accounts like stocks, bonds or money market securities. Although they often have more growth potential than fixed annuities, variable annuities do not guarantee a rate of return and can carry a higher degree of risk. Annuities are long-term investment vehicles designed for retirement purposes. An annuity can be either a fixed or variable contract between an individual and an insurance company that puts savings to work for you over the long-term with tax-deferred earnings. Annuities are popular investment vehicles because they allow you to shelter more money than many other options that offer tax advantages. Withdrawals of taxable amounts are subject to income tax, and if taken prior to age 59 1/2 a 10% federal tax penalty may apply.
Tax-qualified contracts such as IRA's or 401(k)s are tax-deferred regardless of whether they are funded with an annuity. Therefore, an annuity contract should be used to fund an IRA or qualified plan to benefit from the annuity's features other than tax deferral. The other benefits of using a variable annuity to fund a qualified plan or an IRA include the lifetime income options, guaranteed death benefit options and the ability to transfer among investment options without sales or withdrawal charges.
Be Proactive, Be Prepared!
From retirement planning to transferring wealth, our team of Investment Proferssionals can help you develop a financial plan to achieve your long-term goals.