deferred annuities

I Don’t Want an Deferred Annuity Because I Can’t Get My Money Out

Retirees often want to know how quickly they can get to their money in case they need to cover extraordinary expenses such as a medical emergency, or a home or auto repair. This need for liquidity may cause them to avoid deferred annuities. However, when you look closely, you’ll see that annuities can possibly provide access to funds that can accommodate many circumstances. For instance, what if you need to take out money before the deferred annuity matures? Most companies will let you remove a portion of your account’s value each year without paying a withdrawal charge. This is usually 10%, and once the surrender charge period expires, you’ll be able to withdraw as much as you want without paying any penalties to the issuer. But annuities also can allow for other circumstances. Suppose you are worried about money for future long-term care or a medical emergency? Some annuity companies will give you penalty-free access to your funds if you have to go to a nursing home or come down with a critical illness. And what about income from your deferred annuity? If you reinvest, the income is not reported on your tax retyrn and in fact, may help lower the tax [...]

Annuity Rates Can be Different When Renewal Rates are Declared

Perhaps you are considering investing in a deferred annuity to use later in your retirement as a form of longevity insurance. You may want to look into the annuity company’s annuity rate renewal history to make your choice. Two seemingly identical deferred annuities can offer you the same terms but may produce decidedly different annuity rates at renewal time. Let’s see why. A deferred annuity comes under jurisdiction of your state’s department of insurance unlike their variable versions. This limits the annuity company’s investment options to support its deferred annuity offers for the assurance that such an insurance product will give. Regulations require most of its investments to be in bonds. Exploring your potential deferred annuity choices, you may find two companies offering an attractive deferred annuity with the same terms. Each annuity has the same initial annuity rate, the same minimum annuity rate guarantee, the same surrender charge, and lastly the same withdrawal features. But, of course, after the initial annuity rate time has expired, each company will substitute a renewal rate according to its own investment discretion. What determines that?| The earnings from an annuity company’s portfolio depends on the mix of investments (mostly bonds but also mortgages and real property) on the [...]

Qualified versus Nonqualified Annuities – Which Suits You?

Qualified deferred annuities carry significantly different contribution, withdrawal, and tax regulations compared to non-qualified deferred annuities. Know these differences to choose which type you should use. Annuity Nonqualified Qualified Tax-deferred earnings Yes Yes Early withdrawal penalty (10% IRS) Yes Yes Contribute with pre-tax dollars No Yes Contribution based on ‘work’ earnings No yes Yearly contribution limits No Yes Accept direct rollover from qualified plan No Yes Withdrawal requirements No, or much later MRD at 70½ An deferred annuity is a contract you make with an insurance company to grow your principal and then if you choose, to receive as series of payments–usually for life –in return for your ‘premium’ contributions. You can purchase either a fixed deferred annuity or a variable deferred annuity. An deferred annuity has two phases: accumulation and annuitization. During the accumulation phase, you contribute premiums that are invested for growth. You receive your series of payments during the annuitization phase (you may also choose to make your withdraw in a lump sum). Nonqualified Deferred Annuities Earnings within a deferred annuity–like those of a life insurance contract–are not taxed as long as they stay in the deferred annuity. Taxes on these earnings are deferred until they are [...]