Annuity

Tax Free investment paying quarterly dividends is one possibility, but annuities are another. Annuities create the right to receive an amount of money per period for a specified amount of time. Whether the annuity is fixed or variable, the investment is tax-deferred. Unlike Insurance, annuities offer payments up to and even beyond your life span, well after the annuitant dies. This guards against one outliving their investment’s life expectancy.

Annuities look for a lump sum inserted into an account that grows tax-deferred, but the profits are taxed at ordinary rates at withdrawal. The deferred annuity is designed to grow your investment money over time, to provide tax-deferral outside of qualified plans, and make available a steady income at retirement. Annuities are exclusively capable of providing for retirement and beyond. Payout options can provide guaranteed income for life. Even though they are not perfect, living benefits and tax deferral do work for a large portion of Americans. There are different types of annuities, but all normally make available a guaranteed benefit to your beneficiary in the event of your death. Annuities also have a death benefit that entitles your beneficiary to the value of the annuity or a guaranteed minimum, whichever is greater. A minimal annual charge is attached to the account to ensure the guarantee, if you die when your account has fallen below the minimum guarantee.

While you may not consider insurance as part of your investment portfolio, it is a key component of your complete financial picture. Insurance companies issuing annuities provide a number of specific guarantees. Insurance products are regulated by the states, bypassing the NASD and the SEC. The insurance company, for mortality and other expenses, imposes a minimal charge. The death benefit guarantees a return in premium if the policyholder dies before starting the annuity, as a way to attracting buyers. Insurance products are offered through an insurance agency and are underwritten by unaffiliated insurance companies.

Annuity brokers are under no contract to that particular company, and can divulge this information to the customer in the most honest of terms. The annuity responds by offering the Indexed Annuity or the Equity-Indexed Annuity. The long-term investments and surrender charges can be significant. Annuity buyers need to be aware of these differences and use them to evaluate what type of annuity best meets their needs. Research an annuity comparison chart to find out which annuity is most appropriate for your needs.

Fixed annuity products, including fixed index annuities, are gaining in popularity. Individuals who purchase fixed annuities generally seek safety in a guaranteed interest rate, much like that of a CD, and also the advantage of tax-deferral on earnings, which is not available with CDs. Purchasers usually have considerable assets to set aside for retirement, and do not need to access these funds for at least five years. Fixed annuities also offer the investor flexibility in choosing how to take an income from the annuity.

Variable annuities are also tax-deferred, and are usually purchased on a flexible premium basis rather than with a single premium payment. A Variable Money Account can be more aggressive, but with more risk to principal without guarantees, and variable annuities may have especially high fees. But if you are successful in the stocks and bonds markets, buying variable annuities will ensure a more than prosperous life in your golden years. Variable annuities and mutual funds are identical in one respect. A portion of the principal, in both markets, are at risk and can be reduced or loss.

Gift annuities are considered a charitable deduction in the year presented, and the deduction is based on the original amount of the gift.