Advantages of Annuity Ownership
One of the greatest benefits of a fixed or fixed-indexed annuity is that the interest credited to your annuity is completely untouched by current federal income tax during the accumulation period. As a result of tax deferral, interest is compounded and your account grows at a faster rate. Compound interest means that your interest is calculated not only on the initial principal but also on the accumulated interest of prior periods. You pay no federal taxes until you begin to receive income payments or make a withdrawal. Similarly, a variable annuity is a tax-deferred investment. The income earned on a variable annuity is generally not included in income until it is withdrawn from the contract.
The above graph illustrates the difference tax-deferred compounding can make over the long-term growth of an assumed $100,000 qualified contribution in a taxable and tax-deferred savings vehicle, assuming a 5% annual growth rate and a combined state and federal tax rate of 28%. Distributions (including withdrawals) are subject to taxation, and those prior to age 59½ may be subject to a 10% penalty tax and other restrictions for certain annuities. This example does not describe a specific insurance or financial product. A growth rate would reduce the favorable effects of deferring taxes, and a higher growth rate would increase them. This is a hypothetical scenario for illustration purposes only.
Whether you need a fixed period or lifetime payments, annuity settlement options can provide a guaranteed retirement income. The most commonly elected settlement options are:
- Income for a fixed period;
- Single life annuity;
- Single life annuity with period certain; and
- Joint and one-half survivor annuity.
Protection for Your Family
An annuity can serve as an effective estate planning tool since it distributes the remaining contract value to your beneficiaries without going through probate. Some of our annuities also have some additional features that help you protect your assets:
- Extended Care Waiver – To help ease the strain of certain unforeseen events, an Extended Care Waiver may be available for no additional charge. If a contract owner is confined to a nursing home or other long-term care facility after the completion of the first contract year for at least 90 consecutive days, early withdrawal charges may be waived on withdrawals up to a full surrender. There is no additional charge for this waiver.
- Terminal Illness Waiver – If more than one year after the contract effective date, a contract owner or joint owner receives from a physician a diagnosis of a terminal illness with a prognosis of 12 months or less, he or she may have the option with the Terminal Illness Waiver to withdraw up to 100% of the annuity's account value without incurring an early withdrawal charge. There is no additional charge for this waiver, but the withdrawal provision may be used only once over the duration of the contract.
In the unfortunate event of the death of the contract owner before benefit income payments begin, the beneficiary may receive a death benefit from the annuity. In some contracts, the death benefit will be based on the account value, while other contracts use the surrender value or other applicable contract value to calculate the death benefit. In some cases, if the spouse is the surviving joint owner or sole beneficiary, then he or she may succeed to the ownership of the annuity with all the rights and privileges of the original owner, as allowed by IRS regulations.
Access to Your Funds
Annuities are designed to accumulate money for retirement and provide their best possible benefit if left intact, without taking any withdrawals. However, it's nice to know that you have access to the funds in your annuity if you need them. Some of our products offer a number of options to withdraw the money in your annuity, including 10% penalty-free withdrawals and first-year credited interest withdrawals. Remember that withdrawals may be subject to early withdrawal charges and taxes.
Note: This information is not intended or written to be used as investing, legal, or tax advice. It was written solely to provide general information and support the sale of annuity products. A taxpayer cannot use it for the purpose of avoiding penalties that may be imposed under the tax laws. You should seek advice on investing, legal, or tax questions based on your particular circumstances from an independent financial professional, attorney, or tax advisor.