ANNUITIES

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Note: Any reference to the word guarantee is based on the claims paying ability of the underlying insurance company.

An Annuity is a contract issued by an insurance company. It is a unique financial product that provides tax deferral of interest and capital gains and the option (if funds are annuitized) of a guaranteed monthly income for life. Although annuities can serve various needs, the primary purpose of an annuity is that of a retirement vehicle for the annuitant, the person who will usually receive the annuity benefits.

The annuity is an attractive retirement vehicle because the money accumulating in an annuity, grows on a tax deferred basis. There are two parts to an annuity: the accumulation phase and the distribution phase. After accumulating money in an annuity it is not mandatory that the annuitant exercise the annuitization option and relinquish control of his or her cash value and enter into the annuity distribution phase, the annuitant can simply cash out of his or her annuity.

There are three types of annuities: fixed annuities, variable annuities and indexed annuities.

During the accumulation phase, the fund grows tax deferred, it does not grow tax free. If the annuity was not purchased as part of a qualified retirement program such as an IRA, 401(k), TSA, or 457 plan, income taxes are paid on the earnings when money is ultimately paid out. If the annuity is part of a qualified plan the entire fund is subject to income taxes as it is withdrawn.

Annuities can vary by payment mode and are available as “single premium” (purchased with one-time payment) or “flexible premium” (purchased with recurring periodic payments). They also vary by timing of the annuity income and may be available as a“deferred annuity” (which means that annuity income payments are deferred until later) or as an “immediate annuity” (which means that annuity income starts immediately).

To find out more about annuities and which type is right for you please contact RISOA today.

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