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Insurance Group of America

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Annuities

What are annuities?

Annuities are an excellent, long-term tax-deferred way to put aside money and later use those funds to provide a dependable, guaranteed source of retirement income.

In fact, many retirees use annuities as a retirement planning tool.

Annuities offer significant tax advantages that help you grow retirement income since the interest you accumulate isn't taxed until you withdraw the funds.

And, when you do withdraw funds, depending on the type of money you use to purchase the annuity, the income is often only partially taxable.

Here are some of the features of an annuity you will want to consider before investing:

  • Tax-Deferred GrowthLifetime Income

  • Liquidity In Case Of Emergencies

  • No Limit On Contributions

  • No Load or Fees

 
 

  • Bonus Rates

  • The Strength of the Insurance Company

  • The Rate Of Return

  • Professional Investment Management

  • Investment Choices

  • Surrender Charges

  • Death Benefit - If a premature death should occur, the accumulated funds within your annuity may be transferred to your named beneficiaries, avoiding the expense, delay, frustration and publicity of the probate process. Like most assets, the annuity is part of your taxable estate. The beneficiaries can generally chose to receive a lump sum payment, or a guaranteed monthly income.

  • Disability pensions. You are under minimum retirement age and receive payments because you retired on disability. If, at the time of your retirement, you were permanently and totally disabled, you may be eligible for the credit for the elderly or the disabled.


Why Should I Invest in an Annuity?
Before you invest, consider these few things:

  1. How much annuity income will I need in addition to social security, pensions, savings and investments?

  2. Will I need an income only for myself or for someone else also?

  3. Savings Advantages:
    Many people today are using tax-deferred annuities as the foundation of their overall financial plan instead of certificates of deposit or savings accounts. Although CD's and Annuities are very similar there are significant differences between the two. The most important difference is that annuities allow for the deferral of the taxes due on the interest earned until the interest is withdrawal! By postponing the that tax width a tax-deferred annuity, your money compounds faster because you can earn interest on dollars that would have otherwise been paid to the IRS. Later, if you decide to take a monthly income, your taxes can be less because they will be spread out over a period of years. Like Certificates of Deposits, annuities have a penalty for early surrender, however most annuity contracts have a liberal "free withdrawal" provision.

  4. Tax Advantages:
    You pay NO taxes while your money is compounding. The IRS, will, eventually collects taxes on the "earnings" of your annuity. When you withdraw money from your annuity the earnings, according to the IRS, are withdrawn first. The "earnings" are subject to "ordinary income taxes" in they year in which they are withdrawn. You can also pay a lower tax on random withdrawals because you control the tax year in which the withdrawals are made, and only pay taxes on the interest withdrawn, Tax deferral gives you control over an important expense - your taxes. Any time you control an expense, you can minimize it. The longer you can postpone this particular expense, the greater your gain when compared to the gain you would make with a fully taxable account. Keep in mind that capital gain distributions in a mutual fund are taxed at capital gains rates. To illustrate the increased earnings capacity of tax-deferred interest, compare it to fully taxable earnings. $25,000 at 6.0% will earn $1,500 of interest in a year. A 28% tax bracket means that approximately $420 of those earnings will be lost in taxes, leaving only $1,080 to compound the next year. If these same earnings were tax-deferred, the full $1,500 would be available to earn even more interest. The longer you can postpone taxes, the greater the gain. The IRS also has what it calls a "Premature Distributions". If you withdraw your earnings and your under the age of 59 1/2. Not only are your earnings taxed at ordinary income tax rates, the IRS makes you pay a penalty of an additional 10% on the earnings that are taxed.


Safety
Your tax-deferred annuity is safe. A qualified legal reserve life insurance company is required to meet its contractual obligations to you. These reserves must, at all times, be equal to the withdrawal value of your annuity policy. In addition to reserves, state law also requires certain levels of capital and surplus to further increase policyholder protection. Legal reserve refers to the strict financial requirements that must be met by an insurance company to protect the money paid in by all policyholders. These reserves must be at all times, equal to the withdrawal value (principal plus interest less early withdrawal fees, if any) of every annuity policy. State insurance laws also require that a life insurance company must maintain certain minimum levels of capital and surplus, which provide additional policyholder protection.


Immediate Annuity
An immediate annuity provides a secure and guaranteed way to turn the money you set aside for retirement into retirement income. You give the insurance company a lump sum of money (called a premium) and in return, you're guaranteed a steady stream of income payments for your entire life, or for a period of time that you specify.


Deferred Annuities
A deferred annuity helps you set-aside funds today for future retirement with tax-"deferred" growth on your principal. Once you've accumulated the money you need for retirement, you can choose to receive regular income at a date that you choose in the future. You can decide to receive these guaranteed regular income payments for a period of time or over your lifetime. A deferred annuity may be funded with either a single lump sum of money, and/or over a period of time with several smaller sums allowing you the flexibility to tailor your savings rate to your unique situation. While you're setting aside money in a deferred annuity, the funds build compounding over time at a tax-deferred rate.