Tax Deferred Indexed Annuities
- Author Jeff Mcleod
- Published October 15, 2010
- Word count 640
Tax Deferred Indexed Annuities Power and Protection
What is a Tax-Deferred Indexed Annuity? Tax-deferred indexed annuities are contracts between you and the insurance company with guaranteed interest and guaranteed annuity income options. There are no upfront sales commissions or administrative fees during the life of your indexed annuity.
Advantages of Tax Deferred Indexed Annuities include tax deferral, stability, may avoid probate, liquidity features, guaranteed income and guaranteed lifetime income riders.
Your equity-indexed annuity, like other fixed annuities, also promises to pay a minimum interest rate. The rate that will be applied will not be less than this minimum guaranteed rate even if the index-linked interest rate is lower. The value of your index annuity also will not drop below a guaranteed minimum. For example, many indexed annuities guarantee the minimum value will never be less than 80 percent of the premium paid, plus at least 1% in annual interest (less any partial withdrawals). The guaranteed value is the minimum amount available during a term of withdrawals, as well as for some annuitizations and death benefits. The annuity life insurance company will adjust the value of the indexed annuity at the end of each term to reflect any index increases.
In some indexed annuities, the average of an index's value is used rather than the actual value of the index on a specified date. The index averaging may occur at the beginning, the end, or throughout the entire term of the index annuity.
One of the primary advantages of deferred indexed annuities is the opportunity to accumulate a substantial sum of money by allowing your premium and interest to grow tax-deferred. Unlike taxable investments, you pay no taxes on your indexed annuity interest until you begin to take withdrawals or receive income. This allows your money to grow faster than in a taxable account, because you earn interest on the money that would have otherwise been paid in taxes.
Your tax-deferred indexed annuity is stable and safe. State insurance department laws require annuity insurance companies establish and maintain reserves equal to the cash surrender value of your annuity contract at all times. In addition, state laws require annuity life insurance companies maintain minimum amounts of capital and surplus for further contract owner protection.
Annuity life insurance companies invest your premium dollars in a diversity of investments that are closely regulated by the insurance departments. These long-term investments ensure the stability of the annuity company and help to provide you with a competitive yield.
In the case of premature death, your beneficiaries have the accumulated funds within your indexed annuity available to them, with most companies and may avoid the expense, delay and publicity of probate.
Most indexed annuities provide you with opportunities to withdraw funds at any time (subject to applicable surrender charges). Most index annuity contracts allow some form penalty-free withdrawals after the first contract anniversary. Some indexed annuities also have available certain riders which increase liquidity in the event of confinement to a nursing home or if diagnosed with a terminal illness.
Tax deferred indexed annuities provide you with a guaranteed income within a tax-deferred indexed annuity. You have the ability to choose from several different income options, including payments for a specified number of years or income for life, no matter how long you live. With non-qualified (non-IRA, 401k) plans, a portion of each annuity income payment represents return of premium which is not taxed, thereby reducing your tax liability from your indexed annuity income payments.
It is important to understand the features and trade-offs available so you can choose the index annuity that is right for you. Be aware that it may be misleading to compare one index annuity to another unless you compare all the other features of each index annuity. You should decide for yourself what combination of index annuity benefits makes the most sense for you.
http://www.annuitydefinition.com Live Support 800-286-1812
Jeff McLeod is an indexed annuity retirement income specialist.
Copyright 2010
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