A deferred annuity has two parts or periods. During the second period, called the payout period, the company pays income to you or to someone you choose.
An annuity is a contract with an insurance company. With an annuity, the insurance company promises to pay you income on a regular basis for a period of time you choose, including the rest of your life. Annuities are most often bought for future retirement income. Only an annuity can pay an income that can be guaranteed to last as long as you live. An annuity is neither a life insurance nor a health insurance policy.
During the accumulation period, the money you put into the annuity, less any applicable charges, earns interest. The earnings grow tax-deferred as long as you leave them in the annuity. Your value in an annuity contract is the premiums you’ve paid, less any applicable charges, plus interest credited. The insurance company uses the value to figure the amount of most of the benefits that you can choose to receive from an annuity contract.
Deferred annuities offer a basic death benefit, usually have a surrender or withdrawal charge if you take money out too early, and any money your annuity earns is tax deferred. You’ll pay ordinary income tax when you take a withdrawal or receive payments, and may owe a 10% tax penalty before age 59 1/2. This Guide isn’t meant to offer legal, financial or tax advice. You may want to consult independent advisors.
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Educational content provided by Jeffrey Scott McLeod, LUTC, National Insurance Producer License #558629. This is for informational purposes only and is not a recommendation to buy or sell any annuity. Guarantees are subject to the claims-paying ability of the issuing insurance company. Always consult your own advisor and read the full NAIC Buyer’s Guide. For residents of your state.
Jeffrey Scott McLeod, LUTC — National Producer #558629.
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