Annuities
Annuities are flexible insurance contracts designed to provide income and help you achieve short, medium, and long-term savings goals. And these are not unused financial vehicles: last year alone, annuity sales topped $200 billion.
Much like a CD is a financial product offered by a bank, an annuity is a product offered by an insurance company. In essence, the same company that insures your home, your car and your life, may also help you with your finances during retirement.
After making a single lump-sum premium payment, or a series of periodic payments, individuals can then receive regular annuity payments from the insurance company. These payments can be made over a definite period of time, or they can last a lifetime. No other financial vehicle can guarantee you an income that you cannot outlive.
Payments to the annuity owner can be tailored to begin after the contract has been established for a number of years, or they can begin immediately after the first premium payment is made.
Annuity owners have the choice of receiving regular fixed interest rates (better known as a "fixed" annuity), or having their annuities grow depending on the growth of underlying variable accounts (referred to as a "variable" annuity).
Over time, insurance companies modified and enhanced both types of annuities; however, their basic premise has always remained the same. And because annuities are issued by an insurance company, Congress allows them to grow tax-deferred under current tax laws.
Now for a real in-depth look at annuities, let's begin with a brief history of annuities. You might be surprised to learn how long annuities have been around.
A tax-deferred annuity is one of the few products that provide a guaranteed minimum interest rate as well as a current rate, tax-deferred accumulation and the unique ability to give you lifetime guaranteed payments.
Tax-deferred buildup
The tax you would have paid can now be put to work for you. You don’t pay income tax on the buildup accumulated in your annuity until you make withdrawals.
Current tax implications
Tax-deferred buildup – Your annuity’s earnings buildup is not taxed until a withdrawal is made. At that time, amounts received are taxable income to the extent that the cash buildup exceeds the amount deposited.
Withdrawals prior to age 59 ½ -- A 10 percent federal income tax penalty applies to the taxable portion of any withdrawal taken prior to age 59 ½. This penalty does not apply if the annuitant dies or becomes disabled, or if a lifetime income option is taken.
Return of capital – A fixed portion of each payout from a non-qualified annuity is excluded from taxable income. That portion of the payment is considered to be a return of your capital.
See your tax adviser -- TMG believes our annuity contractors have been designed to comply with current income tax requirements. However, the company and our agents cannot give tax or legal advice. Any information we provide reflects our understanding of current tax laws, which are subject to change and reinterpretation.
Partial Withdrawals
We all need extra money occasionally for a family emergency or a financial opportunity. We’ve built flexibility into this annuity to allow for those situations.
Beginning with the second year of the contract, you can withdraw up to 10 percent of the accumulated value at the end of the previous year without surrender charges being assessed. In some states, a partial withdrawal fee may apply. Plus, a 10 percent federal income tax penalty may be imposed on any withdrawal before age 59 ½.
Surrender charges and larger withdrawals
Our annuities are designed to reward long-range accumulation with favorable interest rates. Therefore, if you surrender the contract early or withdraw greater than 10 percent of its value, surrender charges apply
Copyright © 2008 The Monroe Group. All rights reserved.