| As the time comes to make withdrawals from your annuity, you are not taxed as if it were capital gains, you will be taxed on the gains at the regular income tax rate.
It isn't a good idea to take any money out of the plan early because then you will face certain surrender charges and a possible IRS tax penalty of 10% for breaking the annuity contract. Usually you can enter a pay out period at 59½.
Protect Yourself With An Annuity
If you have a nice nest egg, and are afraid that you may blow it before you retire, then you might think about the tax deferred annuity as a restraint and a guarantee for a retirement income.
Protect yourself from yourself.
Types of Annuities
Fixed Annuities
You earn a specified rate of interest and they are usually designed to be for retirement., but you can get an immediate fixed annuity or a deferred fixed annuity.
The immediate obviously starts paying right away, but the deferred starts paying at the end of the agreed term and makes payments to you of the amount and interest until it runs out.
The advantage of the deferred annuity is that it compounds interest.
The usual amount to deposit is between $5,000.00 and $100,000.00 for 3 to 15 years and at rates of 3% to 10%.
The insurance company agrees to periodic payments depending on the amount in the account..
Another plan is the lifetime income option. You would get payments from the annuity for life. It's a preferred plan for many retirees. It pays out a guaranteed monthly income until you die. In some arrangements, it can pay out to your surviving spouse. I think I like this one best for myself. Look carefully at the contract. There are always 401K plans.
Indexed Annuity
In this case, your money is tied into a stock index. Your gain is determined by the fluctuations of these indices. Look carefully at the contract. There should be a rock bottom that the annuity won't drop below in the contract with your insurer. This way you aren't in a position to lose your shirt. Be sure to consider the effect of all fees and caps.
Variable Annuity
In this contract you can set up a portfolio and spread your investment into various investment funds such as mutual funds.
You should be careful to determine if a variable annuity will be the best bet for your retirement.
It is a bit complicated and there are pitfalls with variable annuities. You are tied into the vagaries of the market.The SEC considers these to be securities and they regulate them.
You can set it up so that you get income from it for the rest of your or your spouse or another designee's life.
If you die before you start getting the benefits your beneficiary is guaranteed to get some money.
The variable annuity is tax deferred so you don't have to pay taxes on the investment or gains until you start to withdraw your money.
There is an opinion that you have to hold a variable annuity for a longer period of time for the advantage of the tax deferral to be worth while due to the other costs and risk involved.
I was advised that if I purchased an annuity within an IRA it would give me the advantage of a tax deduction for the investment in the Tax Deferred Annuity.
Check for your self but this sounds like a good idea. |
