Category Archives: Annuity

What is an Annuity and what are its attractive features?

Annuity is an agreement between one person or organization with another person or organization to make a series of payments. In general terms, it is a contract between you and another organization like a life insurance company, a charity or a trust where you continue to make a series of payments for a specified period of time.

Annuities can be classified under different categories:

  • Nature of the underlying investment – fixed or variable.
  • Primary purpose – accumulation or pay out. It can be differed or immediate
  • Qualified or non qualified tax status
  • Premium payment arrangement. It can be single or flexible premium.

The attractive features of annuities are as following:

Tax deferral on investment earning: There are different types of investments that are taxed every year. There are certain investment earnings – capital gains and investment income in annuities that are not taxable until you withdraw money. Unlike the 401(k)s and the IRAs, you can put any amount into an immediate annuity. In the same way, the minimum withdrawal requirements for annuities are more liberal than they are on the IRAs and the 401(k)s.

Protection from creditors: The amount invested in Annuities are protected and if you have some creditors under some kind of payment plan, they cannot touch your money invested in annuity according to the state laws and court decisions.

An array of investment options, including “floors”: There are many annuity companies that offer various kinds of investment options. If you invest in a fixed annuity, you will have a specified interest rate credited like a certificate of deposit. If you buy a variable annuity, your money can be invested in stock or bond or mutual funds. Recently, annuity companies have created various types of floors that will limit the extent of investment decline from an increasing reference point. For example, there are some kind of annuities that guarantees a certain amount of value on your investment on its most recent policy anniversary.

Tax free transfers among investment options: There are no tax consequences with annuities if you change how your funds are invested. Many financial advisors recommend rebalancing of funds where you shift your investments periodically to return them to the proportions that you determine represent the risk/return combination most appropriate for your situation.

Lifetime income: Certain annuities can covert an investment into a stream of payments that will last till your death. The money is generated from your investment, investment earnings and a pool of people in your group. It is assumed that not all the people in the group will be able to live as the actuarial tables forecast. This allows the annuity companies to guarantee you a lifetime income.

What is an Annuity and what are its attractive features?

Annuity is an agreement between one person or organization with another person or organization to make a series of payments. In general terms, it is a contract between you and another organization like a life insurance company, a charity or a trust where you continue to make a series of payments for a specified period of time.

  • Annuities can be classified under different categories:

Nature of the underlying investment – fixed or variable.

Primary purpose – accumulation or pay out. It can be differed or immediate

Qualified or non qualified tax status

Premium payment arrangement. It can be single or flexible premium.

  • The attractive features of annuities are as following:

Tax deferral on investment earning: There are different types of investments that are taxed every year. There are certain investment earnings – capital gains and investment income in annuities that are not taxable until you withdraw money. Unlike the 401(k)s and the IRAs, you can put any amount into an annuity. In the same way, the minimum withdrawal requirements for annuities are more liberal than they are on the IRAs and the 401(k)s

Protection from creditors: The amount invested in Annuities are protected and if you have some creditors under some kind of payment plan, they cannot touch your money invested in annuity according to the state laws and court decisions.

An array of investment options, including “floors”: There are many annuity companies that offer various kinds of investment options. If you invest in a fixed annuity, you will have a specified interest rate credited like a certificate of deposit. If you buy a variable annuity, your money can be invested in stock or bond or mutual funds. Recently, annuity companies have created various types of floors that will limit the extent of investment decline from an increasing reference point. For example, there are some kind of annuities that guarantees a certain amount of value on your investment on its most recent policy anniversary.

Tax free transfers among investment options: There are no tax consequences with annuities if you change how your funds are invested. Many financial advisors recommend rebalancing of funds where you shift your investments periodically to return them to the proportions that you determine represent the risk/return combination most appropriate for your situation.

Lifetime income: Certain annuities can covert an investment into a stream of payments that will last till your death. The money is generated from your investment, investment earnings and a pool of people in your group. It is assumed that not all the people in the group will be able to live as the actuarial tables forecast. This allows the annuity companies to guarantee you a lifetime income.