Your Annuity Options
Deferred annuities can be a great way to accumulate money for
retirement, particularly if you have many years before retirement. Your
money grows tax deferred, which means you pay no taxes on earnings until
you begin to withdraw your money.
- Postpone paying income taxes on any earnings until you withdraw money,
typically during retirement, when you may be in a lower tax bracket.
Any earnings grow tax-deferred.
- Take advantage of non-taxable transfers. In other words, if you transfer
money to a different funding option within your variable annuity, you
won't have to pay taxes on any earnings you have made. Tax-free switching
lets you reallocate money to suit changing market conditions, without
worrying about the tax hassles.
- Put in as much money as you want. Unlike Individual Retirement Arrangements
(IRAs), there is no IRS restriction on the amount that can be contributed
annually to deferred annuities.
- Provide a death benefit to your heirs. If you die, your annuity can
offer a death benefit to your beneficiaries without the costs and delays
of probate. A spouse who inherits an annuity before distribution has
begun can step in as the new owner of the annuity and the tax deferral
continues until amounts are withdrawn. If distribution payments had
begun, the benefits would generally have to be distributed to the beneficiary
at least as rapidly as through the method in effect at the time of
the annuitant's death. Taxation will continue to apply to those proceeds.
- Use it as an additional source of retirement income. If you want
retirement income beyond what you will receive from Social Security
or your pension plan, an annuity can provide it.
- Choose how to receive your money once you retire. When you're ready
to start withdrawing your money, you can take it all out in a lump
sum or you can receive it in a steady stream of periodic payments --
so-called "annuitizing." When periodic payments are received
for life (or life expectancy), rather than in a lump sum, income is
guaranteed for life (or life expectancy) and the tax liability can
be spread out over a period of years. Some of the earnings are included
in each payment and are taxable. Meanwhile, tax-deferred earnings continue
to accumulate on the remaining principal and earnings that have not
yet been distributed. So, receiving distributions as periodic payments
after retirement may further reduce your income tax liability, if you
are in a lower tax bracket.
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