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Annuities
What Is an Annuity?
A tax-deferred annuity is a contract, issued by an
insurance company, which allows you to accumulate money on a tax-deferred
basis for long-term goals such as retirement. When you are ready to receive
income from your annuity, you can withdraw funds as needed, or set up a
regular payment schedule guaranteed by the issuer, which would last over a
given time period. The issuing company may impose surrender charges that
can start at 7%, and generally decline over 3 to 7 years on withdrawals
beyond those permitted under the contract provisions. Withdrawals from
annuities before age 59½ may be subject to ordinary income tax and a 10%
tax penalty.
Annuities are among the fastest-growing retirement
investments. Despite their popularity, many people still don’t know much
about them. The following will help explain the different types of
annuities. You can contact your Financial Advisor to see how annuities may
be able to fit in your overall portfolio.
There are two types of annuities, fixed and variable.
A fixed annuity has a guaranteed fixed
interest rate for a stated period of time. Depending on the terms of the
contract, the insurance company may adjust the rate annually. There are two
types of fixed annuities. The first type is one in which the insurance
company guarantees the interest rate for a specified period of time,
typically 1 to 10 years. The second type guarantees a bonus rate for one
year, then resets the rates on an annual basis according to current
interest rates. Before investing, you should be sure to check which type of
fixed annuity you are purchasing.
A variable annuity is essentially a basket
of investment options —generally referred to as sub-accounts—issued by an
insurance company. Any earnings within a variable annuity are permitted to
accumulate tax-deferred. So you'll pay no taxes on earnings until you begin
taking withdrawals, typically during retirement. There is no limit on how
much you can contribute to a variable annuity. The subaccounts, will vary
according to the securities they invest in and their risk level. The return
on an investment in a variable annuity will depend on the performance of
the sub-accounts you choose.
A Geoffrey Richards Financial Consultant can offer you a
wide variety of annuity products that can help you meet your financial
needs. We invite you to receive a free annuity review.
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