Overview & Policy Types
Annuity Overview
Whether your client is looking for a safe and secure retirement vehicle like a fixed annuity with an interest rate that is guaranteed for a specified period, or they want to leverage gains in the market while hedging against loss, there is a retirement vehicle for each client's specific needs.
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Today there are annuity products with riders that can give clients lifetime income and even elder care provisions. Annuities are popular retirement vehicles because earnings grow tax-deferred in accordance with IRS requirements until withdrawn, at which time they are taxed as ordinary income.
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Two Main Annuity Strategies
Deferred Annuity:
A deferred annuity begins in the accumulation phase and later converts to the payout (annuitization) phase. You may make one or more payments, which grows tax-deferred as long as they remain in the annuity. Earnings are taxed as ordinary income when they are withdrawn from the annuity.
Immediate Annuity:
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With an immediate annuity, regular payments are generated within a short period of time. Payments can be structured with great flexibility. Typically, an immediate annuity becomes a binding contract once it is funded and cannot be broken. The principal investment is surrendered in return for the promise of a guaranteed income stream paid by the insurance company.
Annuity Advantages
Annuities are tax-deferred vehicles and unlike other retirement accounts such as 401(k)s and IRAs, there is no annual contribution limit.
An Annuity grows tax-deferred.
When you eventually make withdrawals, the amount you contributed to the annuity is not taxed, but your earnings are taxed ordinary income.
There is a 10% federal tax penalty if you withdraw money before age 59½ for reasons other than death or disability.
Quick Video About Annuities
Get a quick overview of the four types of annuities American Equity.