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There are many ways to put money aside today to save for your future. However, the best ways also provide some relief from taxation, such as:
- tax-deferred Retirement Savings Plans - which also pay competitive interest
- Individual Retirement Accounts (IRAs)
- Tax Sheltered Annuities (TSAs)
- Education IRAs
- Roth IRAs
- Annuities
Individuals today have an ever-increasing responsibility to manage their own finances when planning for the future. As the Baby-boomers reach retirement, the demands on our retirement systems will be affected.
There are many ways where we can save for the future. When putting away for retirement, the best ways include some tax-advantage planning. One of those choices is with annuities.
What is an Annuity?
An Annuity is a contract generally sold by an insurance company, and backed by the strength of that company. It allows you to put money in a savings arrangement that grows on a tax-deferred basis, called the accumulation phase. When you are ready to withdraw your money (the distribution phase), you may take it out as needed, or select to have a lifetime income. The withdrawals may be all at once, at regular or occasional intervals, Take just the interest only or it may be "annuitized,” meaning you will receive regular payments for the rest of your life.
How does the
Accumulation Phase work?
During the accumulation phase, you add money into your annuity, once or over
time. The money you pay in grows on a tax-deferred basis which means you do
not pay tax on it every year as you would in a savings account.
How
does the Distribution Phase work?
There are many options available for taking your money back out of your
Annuity. Check with your insurance company for details on the options they
offer. Keep in mind that distributions made to you before you reach age
59-1/2 will incur an additional 10% tax on the growth amount. It may be more
beneficial to accumulate, or grow, your funds in one account, then move them
into another for annuitization.
What
types of Annuities are there?
There are about as many types of Annuities as there are insurance companies.
However, all fall into one of three (3) categories: Variable, Fixed and
Indexed.
What
are Variable Annuities?
Variable Annuities are securities products sold by a registered
representative. The return you will receive is based upon the performance of
the portfolio in which your money is placed. No interest is earned on
variable Annuities; growth comes through the appreciation in value of the
portfolio.
What
are Fixed Annuities?
Fixed Annuities are sold by an insurance agent, and are not really "fixed"
but rather provide a minimum guaranteed interest rate. They pay competitive
interest rates above and beyond the guaranteed minimum rate when
appropriate. The interest rates change with the overall interest rates in
the marketplace so earn interest on a compounding basis.
What
are Indexed Annuities?
Indexed Annuities are
the newest form and
therefore vary the most from one company to the next. They are “tied” to a
certain type of index. It can be the Standard & Poors, bonds indexes or
others. Some companies allow you to move between one index and another each
year. Because the index may drop during the year, an indexed annuity that
has downward protection may be attractive.
Can my
Annuity be inherited?
Yes. The proceeds of your Annuity pass directly to your named beneficiary.
This may be done very quickly upon the Annuity-issuing company's receipt of
a certificate of death. Any "gain" in the contract (Annuity) received by the
beneficiary will be subject to income taxes. It's important to remember that
all proceeds of a tax-qualified plan (such as the Traditional IRA) may be
taxable, and included in the Annuity owner's estate for estate tax
calculations.
Can Rob
Schumer & Associates help me purchase an Annuity?
Yes, we work with a range of insurance companies offering numerous types of
Annuities. Let us help you save time and money when choosing the Annuity
that will best suit your individual needs.
Call us today to start securing your future.
