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AnnuiWeb is a news and information source for consumers
interested in learning about annuities. Our goal is not to sell
annuities, but to provide consumers with the information they need
to make informed decisions about annuities. AnnuiWeb is not an
annuity sales website. AnnuiWeb does not sell and will never sell
any annuity products.
What is an annuity?
By strict definition, the word "annuity" means
"an amount payable annually". More specifically, an
annuity refers to a contract offered by insurance companies which
allows you to save funds for retirement on a tax-favored basis and
then, if you choose, receive a guaranteed income payable for life
or for a certain period such as five or ten years.
How can annuities enhance my portfolio?
In a word: diversity. Any financial advisor will tell you that
the more diverse your holdings, the better your assets are
protected against risk. Annuities can provide varying levels of
risk, depending on the type of annuity, but all annuities are
equity vehicles, i.e., you own part or all of the asset (as
compared to debt instruments, where you owe another entity). This
is because annuities are products which you purchase, not funds in
which you invest. You purchase the annuity contract from an
insurance company, and that company in return pays you according
to the terms of the contract
What advantages do annuities offer that typical investment
options don't?
With the wealth of investment options available, what perks do
annuities offer that typical investments don't? After all,
deciding where to put your money is the most crucial decision you
make, the choice that starts you down the road to financial
security. How can annuities get you there better, faster, and
safer than typical investment products? The answer lies in the
three ways annuities stand out from the crowd: their tax deferred
status, the avoidance of probate, and the promise of guaranteed
income for life.
Annuities give me a guaranteed income for life? How?
Annuities are the only investment vehicle to offer a guaranteed
income for life. With every other type of savings investment, you
can never be sure your income will continue for as long as you
live. With an annuity, the insurance company designs the annuity
around your income goals, guarantying payment for as long as you
live. Most insurance companies will also offer a guaranteed income
for a specific period such as five or ten years. The guaranteed
lifetime income may be based on your life only, or based upon the
life of both you and a joint annuitant, typically your spouse.
How does the law protect my investment?
To safeguard the funds of its contract holders or policy
owners, an insurance company has to meet strict financial
requirements. Most importantly, these requirements include the
establishment of a reserve which at all times must be equal to the
withdrawal or surrender value of their total block of annuity
policies or contracts. In other words, the insurance company must
set aside funds equal to the surrender value of every annuity
contract in force. In addition to these reserving requirements,
state laws also require certain levels of capital and surplus to
further protect their contract holders or policy owners.
What's the impact of an annuity on my taxes?
If the annuity is nonqualified, i.e., purchased with after-tax
dollars, only the gain or earnings are taxable. However, the taxes
on the gain or earnings are deferred until such time as you
actually withdraw the earnings. To the extent that there is a gain
or earnings in the contract, the IRS considers any money withdrawn
to be earnings. For example, let's say you deposited $10,000 in a
variable deferred annuity, and five years later that deposit had
accumulated to be $15,000. In this example the first $5,000
withdrawn is considered earnings by the IRS and is taxable as
ordinary income in the year in which it is withdrawn. Because the
IRS allows special tax-deferred treatment on annuities for the
purpose of accumulating funds for retirement, any earnings
withdrawn prior to age 591/2 are considered a 'premature
distribution' and are also subject to a 10% tax penalty in
addition to ordinary income tax. If the annuity is qualified,
i.e., purchased with before-tax dollars, any amounts withdrawn
including principal are subject to tax in the year in which they
are withdrawn. Again, any withdrawals made prior to age 591/2 are
considered a premature distribution and also subject to a 10% tax
penalty in addition to ordinary income tax.
If I purchase an annuity, with whom am I investing?
Annuities are offered by insurance companies. Annuities are
only offered by insurance companies licensed to underwrite life
insurance and annuities by the state in which you reside. Each
such insurance company is a qualified legal reserve life insurance
company subject to financial requirements specifying the minimum
reserves the company must maintain on its policies.
Who sells the annuities?
Only agents licensed by the states to sell life insurance may
sell you an annuity. This includes every licensed life insurance
agent in your state as well as most financial planners and stock
brokers.
To learn more about Annuities and if they are the right choice
for you click here:
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