Purchase Fixed and Indexed Annuity
An Annuity is A contract sold by an insurance company designed to provide payments to the holder at specified intervals, usually after retirement. The holder is taxed only when they start taking distributions or if they withdraw funds from the account. Most annuities are tax-deferred, meaning that the earnings from investments in these accounts grow tax-deferred until withdrawal. Annuity earnings are also tax-deferred so they cannot be withdrawn without penalty until a certain specified age. An annuity has a death benefit equivalent to the higher of the current value of the annuity or the amount the buyer has paid into it. If the owner dies during the accumulation phase, his or her heirs will receive the accumulated amount in the annuity. This money is subject to ordinary income taxes in addition to estate.
Equity Indexed Annuities
An annuity with an interest rate linked to the performance of an equity index. Most annuities pay the interest rate stated in the contract, but an equity-indexed annuity pays a minimum interest rate, with the possibility of a higher rate depending on the performance of the relevant stock or equity index. Each plan uses a different methodology in determining how the higher interest rate is calculated. Common features in its calculation include a participation rate, which determines how much of the annuity is linked to the index, and the rate cap, which sets a maximum interest rate on some plans. Many equity-index annuities use the Standard & Poor’s 500 Composite Stock Price Index (S&P 500) as their benchmark.
Fixed Annuities
A fixed annuity is a contract that allows you to accumulate earnings at a fixed rate during a build-up period. You pay the required premium, either in a lump sum or in installments.
The insurance company invests its assets, including your premium, so it will be able to pay the rate of return that it has promised to pay, then at a time you select, usually after you turn 59 1/2, you can choose to convert your account value to retirement income.
Among the alternatives is receiving a fixed amount of income in regular payments for your lifetime or the lifetimes of yourself and a joint annuitant. That’s is called annuitization. Or, you may select some other payout method.
The contract issuer assumes the risk that you could outlive your life expectancy and therefore collect income over a longer period than it anticipated. You take the risk that the insurance company will be able to meet its obligations to pay.
The insurance company invests its assets, including your premium, so it will be able to pay the rate of return that it has promised to pay, then at a time you select, usually after you turn 59 1/2, you can choose to convert your account value to retirement income.
Among the alternatives is receiving a fixed amount of income in regular payments for your lifetime or the lifetimes of yourself and a joint annuitant. That’s is called annuitization. Or, you may select some other payout method.
The contract issuer assumes the risk that you could outlive your life expectancy and therefore collect income over a longer period than it anticipated. You take the risk that the insurance company will be able to meet its obligations to pay.