Annuity - Fixed, Variable, Equity-Based Annuity - Deferred, Immediate Annuity

Annuities are not a new concept, although they have become more complex over time. The first annuities were documented in America during the mid-eighteenth century by Pennsylvanian ministers, and it was not until the early twentieth century when they became available for purchase by the general public.

WHAT IS AN ANNUITY? HOW CAN YOU BENEFIT FROM AN ANNUITY?

So, what is an annuity, and how can you benefit? A simple answer is that an annuity is an agreement between you and your insurance company. Annuities can only be sold by agents specifically licensed to do so, and each insurance company is regulated by individual state insurance commissions. Your insurance agent must possess a life insurance license as well as a license from the National Association of Securities Dealers (NASD) or the Securities and Exchange Commission (SEC).

If your insurance company goes bankrupt, other licensed companies in the state are required to honor your contract. The terms of an annuity are that you will pay a sum of money to the insurer (either a lump sum or series of payments) and they will make scheduled payments to you immediately or delay payments until after a certain period of time.

Unlike your 401(k), annuities grow tax-deferred and you will not pay any taxes to the Internal Revenue Service (IRS) until you begin withdrawing funds from your annuity. Unlike other savings options through a bank which may calculate and charge yearly taxes on your interest, in a tax-deferred annuity your taxes are based only on the final accumulation of your annuity at the time of withdrawal.

ANNUITY TYPES: FIXED ANNUITY, VARIABLE ANNUITY, EQUITY-BASED ANNUITY

In addition to deciding when you will receive your money from an annuity, you can also choose between a fixed and a variable annuity. A fixed annuity guarantees a minimum interest rate while your annuity accumulates, and guarantees equal check amounts when you withdraw from the annuity.

A variable annuity allows you different investment options for your funds, with a mutual fund as the most common choice. A variable annuity offers no guarantee to payout amounts, and your income from this annuity will fluctuate depending on the investment vehicle you chose. On occasion you may be offered an equity-based annuity which determines your interest rate based on an equity index such as the S&P 500.

CHOOSING BETWEEN A DEFERRED ANNUITY AND IMMEDIATE ANNUITY PLAN

Deciding between a deferred and an immediate annuity is a matter of personal preference. If you prefer to save for a long-term goal such as retirement, and have no immediate need for the money, you should consider a deferred annuity. It is important to remember that if you choose this type of annuity there are penalties for early withdrawal. The IRS imposes a standard ten percent penalty, in addition to income tax on accrued funds, if you withdraw money before the age of 59 ?. Your insurer may also charge you surrender fees for early withdrawal.

3 METHODS FOR REQUESTING PAYMENT FOR DEFERRED ANNUITY

If you wait until retirement to withdraw money, there are three methods for requesting payment from a deferred annuity. You can:

1) Request a lump sum payment or

2) Take out money only when you need it or

3) Annuitize and receive a set dollar amount every month for as long as you live

Most people choose to annuitize because it also spreads out the required income tax payments. If you die before withdrawing from the annuity your beneficiaries are entitled to receive the balance of your annuity by these methods as well, although if they choose a lump sum they will be charged all the tax on your accrued interest at once.

IMMEDIATE ANNUITY IF CLOSE TO RETIREMENT

If you are close to retirement, or already retired, an immediate annuity is a wiser financial choice. Immediate annuities must be purchased with a lump sum since payments will usually begin within one month of purchase. When you purchase an immediate annuity you are guaranteeing a steady income for the rest of your life, or for a predetermined time period. When you receive payments from an immediate annuity you are only taxed on the earnings from your initial investment. The part of your check that is the principal is not taxable.

3 MAIN OPTIONS FOR WHEN YOU RECEIVE AN ANNUITY PAYMENT

There are three main options to choose from when receiving an annuity payment.

1) The first is Income for Life which guarantees you a set income for the duration of your life, but payments will cease upon your death. This option is risky since you don?t know exactly when you will die. Should you die before your annuity has been completely paid out, the insurance company, and not your beneficiaries, will receive the remainder of the annuity funds.

2) The second payout option is Income for Life with a Guaranteed Period. This option is more appealing because it provides the same coverage as the first option, but if you die before the predetermined guarantee period expires, your beneficiaries will continue to receive payments until the guarantee period ends.

3) A third option is known as the Joint and Survivor option. This option guarantees payment to you and another person, usually a spouse, until both of you dies. Annuity payout options are flexible and any of these options can be combined to fit your individual needs.

DOWNSIDES TO AN ANNUITY

Annuities may also be used to fund your 401(k), 403(b), and Individual Retirement (IRA), although it is not generally advised to use your annuity for this purpose. The two downsides of greatest concern are a contribution limitation, and the federal government requirement for you to begin receiving minimum payments by age 70 ?. Additionally, once you have used your annuity to finance your 401(k), for example, you will incur a ten percent penalty for early withdrawal if you take money before you reach age 59 ? and there are few exceptions to paying this penalty. Once you begin receiving annuity payments you cannot change your mind, and you will continue to receive payments for the predetermined time frame established during the accumulation phase.

author bio - Rocco Beatrice, CPA, MST, MBA
award-winning estate planning & trust expert
MS - Taxation, Master of Science Taxation
MBA - Management / Taxation
BSBA - Management / Accounting
CPA - Certified Public Accountant
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Buyer Of Structured Annuity Settlement - How To Find the Structured Annuity Buyer That Suits You

Annuities are important and valuable policies for many senior citizens in the USA. Sometimes, however, any one of us may have need to plan for the future differently. Our plans may change, we may require cash fast and decide to sell the annuity or part of it for a large lump of cash.

Annuities are usually paid annually in small amounts and for some people, it may not be enough to support their lifestyle. Many people need cash today to invest in their own business even after retirement, some may have loans to pay off, or many people with good financial standing would rather have a large sum in advance, than having small payments deposited annually. Selling your annuity may give you more leverage for your "future" money, today.

It must be noted that selling your annuity, may have tax implications so it would be wise to have some idea of your situation.

There are a few reputable financial companies on the market that will work with you and based on your situation, provide you with the plan that may suit you best.

Even if you have already decided to sell your annuity, it would be extremely wise to shop around. This point cannot be stressed enough, as many people accept the first offer they come across and think this is the best they can do. Because of the years involved, even a small percentage variation in time periods can mean difference in hundreds of dollars in, or out of your pocket.

Use the internet, obtain as many quotes as you can, and make informed decisions. In addition you will gain more knowledge in the process.

If you are serious about your financial future than be sure to read "Buyers of Annuity Structured Settlement" article at http://lump-sum-structured-settlement.savehog.com Where you will find variety of valuable information including links to free instant online quote from annuity buyers, as well as host of online resources and calculators.

Buy Annuity Leads

The financial products such as annuity are created keeping in mind the expectations of certain type of prospective customers. The age of the prospect comes in this type. So are his/her income group and the type of profession they are engaged in. Needless to say that, in order to sell its investment products, the financial companies have to reach out to the targeted customers first. Hence the agents of the financial companies are generally on the look out for the database of such customers. This information is sensitively profiled by specialized research firms and is offered as leads to agents and financial companies needing this database. These leads are generated from various sources which include websites that are developed to monitor genuine customers who are surfing the Internet for buying annuity.

While leads are very important for selling annuity, however certain factors should be taken into consideration while buying them. It?s crucial to know, how the research company operates and by using which methods the leads are being generated by the research company. Instead of buying the leads from the first authentic company one comes across, it pays to search for more companies in order to get optimum benefits. The cost of acquiring the leads is also significant. The terms of payment should be clearly discussed before entering into a payment contract. There are some companies that raise monthly bills for providing leads. It must also be ascertained whether the leads are sold only to one agent/ company. For better results while playing safe, the leads should be bought in small amounts from various firms. This way, the quality of the leads and the firm providing these databases can be safely assessed without incurring much cost - a good deed indeed for good leads!
Buy Annuity provides detailed information on Buy Annuity, Buy Annuity Leads, Buy Fixed Annuity, Buy Retirement Annuity and more. Buy Annuity is affliated with Fixed Annuities.

An annuity Based Pension might just be the answer.

Of all types of income generating investments, annuities are some of the most controversial. There is a body of opinion that says they are a complete waste of time and you would do much better if you were to place the capital sum on the stockmarket or invest in property. But then again the stock market has been known to crash and property has frequently been known to decrease in real value, so if security is high on your list of priorities maybe annuities are worth a thought after all.

Annuities are popular as vehicles for pensions, perhaps mainly because they can be very tax efficient. If money is wrapped up in this investment it takes a tax holiday until such time as the premiums become due and payments are made. As this is likely to happen after retirement the tax liability falls dramatically.

There are two types of annuity. The former is deferred, which means payments are made, usually on a monthly basis for a number of years. This is a good way for the younger person to acquire an income later in life. The other variety is the fixed version. In this package, the purchaser pays a large capital sum usually to an insurance company and payments begin soon afterwards.

The big enemy of annuities is inflation. At the outset the agreed sum to be paid out might seem generous, but inflation can erode the value of the venture in a very alarming fashion.

On the other hand a fixed payment annuity based pension provides an excellent budgeting tool. You will know each month how much money you will receive and thus in much the same way as a salary, be able to cut your cloth accordingly. This allows for more efficient financial planning.

When it come to tax, there can be penalties if the annuity is cashed in before the "owner" reaches sixty years of age and this could be a disincentive for those folks who plan early retirement or find themselves made redundant before reaching the official age of retirement. However, as I said before there are some distinct tax advantages, particularly for those individuals in the higher tax brackets. Deferred Annuities are in effect a compulsory savings plan. In those years of high tax liability it would make a lot of sense to save as much as possible because these savings are then tax exempt. Tax is only due when income is received from the plan. That means you start drawing your annuity after you have stopped earning a high salary. It's very neat because as you have decreased earning your tax liability will drop to a lower level than previously. This all means you have allowed the IRS to partly finance those golden days of retirement. Now that begins to appeal does it not?

Interested in this subject? Try this link for more of the same

www.annuitiesforlife.com