What is an Annuity?
An annuity is a contract normally issued by an insurance company. Deferred annuities enable you to set money aside and have it grow on a tax-deferred basis for your future use. When you are ready to retire, you can withdraw money as needed, or you can turn the value of your annuity into a regular income stream that is guaranteed by the issuing insurance company to last the rest of your life, regardless of how long you live.
Is an Annuity Right For You?
Think about your retirement dreams, then consider these facts:
- Social Security and company pension plans may not provide enough income to make those dreams a reality.
- Annuities let you invest an unlimited amount of money tax-deferred -- even if you're already contributing the maximum to an IRA or 401(k) plan.
- Longer average life spans mean your retirement income may have to last 20 to 30 years or more.
- Annuities can help to grow your retirement money faster by converting taxable income into tax-deferred savings.
- Inflation is a silent thief. Even if it averages just 3.3% per year over the next 15 years, today's 65-year-olds would need to increase their income by 80% to maintain the same standard of living at age 80.
No wonder millions of Americans have started to build extra retirement resources using the tax deferral and flexible choices that annuities offer. Today, there is a wide range of plans -- from fixed annuities to variable annuities to immediate income annuities.
Tax-Deferred Savings and Investing Protection
With an annuity you make one or more payments now in exchange for income at a later date -- perhaps when you're retired. In addition, most annuities pay the beneficiary of your choice (such as a spouse, child, or other family member) a lump sum or series of payments equal to at least your investment in the event of your (the annuitant's) death prior to annuitization. Tax deferral means that you do not pay taxes on your investment's growth until you actually begin to withdraw your money.
Accumulation and Payout Information
Deferred annuities have two phases: accumulation and payout.
During the accumulation phase your assets are invested for potential growth. You can make a single, lump-sum investment or build assets with multiple payments over time.
During the payout phase you begin receiving payments. This is also called annuitization. Typically, this is during your retirement. Most annuities provide a variety of payout options. For example, you could choose to receive a lump-sum payment, payments for a set period of years, or payments for the rest of your life. Or you might structure payments to increase over time.
Having flexibility in making and receiving payments allows you to structure an annuity to fit your budget and your retirement goals.
Why Are There No Current Income Taxes Paid On Yearly Earnings?
In accordance with Section 72 of the Internal Revenue Code, all assets invested in an annuity earn interest on a tax-deferred basis. The cash value is allowed to accumulate free of current income tax. This deferral has two advantages: Since more money stays in the account, it builds more quickly than if it were taxed. Also, many policyholders receive their annuity distributions after they retire, when their marginal tax rate may be lower.
What Happens To The Contract When I Die?
Because an annuity is an insurance contract, the proceeds pass directly through probate. With most variable annuities, when death occurs, the beneficiary will receive the greater of 100% of the purchase payments, less any withdrawals, or current market value.
What Sales Charges Are Involved?
There are no front-end loads deducted, so 100% of your premium goes to work for you! Certain charges, such as administrative and management fees, are deducted annually from your contract base. Most policies have a disappearing back-end surrender charge which may be assessed if you terminate the policy in the early years.
Types of Annuities
Contact Morgan Keegan today for more information about the Annuities we offer.
