Q & A     relating to annuities

 Why would one purchase an annuity ? 

Some reasons: Guarantees and Certainty, Wealth protection, Tax deferral, Growth potential, Safety.
 What kind of guarantees ? 

Guarantees:  Your principal is guaranteed, gains achieved are guaranteed , and an income for life can be guaranteed.   

What other guarantees ?  

There are guarantees of minimum interest to be paid, and depending on  the annuity selected, guarantees of principal interest to be paid.

What is tax deferral and how does it affect me ?  

Tax deferral means that your money grows without annual taxes being assessed on the earnings, so your money can grow faster.

So, is an annuity an IRA ?

No. An IRA is a concept known as an Individual Retirement
Account in which investments are placed and held, and those investments in turn receive tax favored status from the
Federal Government. 

Then, an annuity has the same features as an IRA ?

There are different kinds of IRAs established for different purposes. A  Roth IRA is funded with after tax dollars, and the gains are not taxed  if you are over 591/2 and it is held for five years or more. A deferred  annuity created with non qualified money  allows for tax deferral on the  gains. Contribution limits are much greater with the annuity and are  defined by the insurance company. Single or married individuals  who  exceed certain income levels are not allowed Roth IRAs.
There are no such limitations for annuity buyers.

What is an annuity anyway ? 

Well, its a long term financial tool (kind of a self created pension)  designed to  contribute to a secure retirement. More than that, its a  contract between you and a life insurance carrier which allows you to  accumulate tax deferred savings and receive a series of payments over  the rest of your life, or the lives of you and your spouse, or for any  selected period of time.This feature is unique to annuities and not  found elsewhere.

All annuities contain those provisions ??

OK, all annuities contain some or all of those features. Most of this  site concerns itself with Fixed Index Annuities which do include those  features and other features as well.

So theres different kinds of annuities ?

Absolutely. Please look around my site. Any further questions,

email   toc@tocinsurance.com

You say its a contract, so I have to commit myself to something, right ? What do I have to do ?

Yes, financial decisions between parties require signatures of the parties. In my mind those signatures comprise a contract.

Okay, okay, so what do I have to do ?? 

First of all you need to ask a lot of questions so you know what you're  purchasing to be certain thats its suitable for you, or find someone who  asks a lot of questions about your objectives.
Then you need to provide the premium to the insurance company to fund the annuity you select.

What if I want my money back at sometime in the future ??
 If  you want it all back in a lump sum, then you should purchase an annuity  for a term that ends when you want to access the funds.

No, I mean if  I purchase a fixed index annuity with a longer term horizon, and I want my money back sooner ?

There will be , by my standards,  a reasonable surrender charge offset against whatever gains the annuity has achieved.
It will vary by annuity and the time owned.  A minimum guaranteed selling price is always contained therein. 

What if I want to access some of my money ? Can I do it without incurring any charges ?

Many of the fixed index annuity types allow you to access a portion of  your money each year during the accumulation period. At the end of that  time,  there are various choices as to how you would like the money  distributed. For more information email:


Can I leave it to my family ?               yes if you are referring to a beneficiary stated in the contract  in the accumulation phase of that type of annuity (which is a common type). A fixed income annuity for example.

Note however in an annuity such as a Single Premium Immediate Annuity (SPIA) there are different choices for payout terms. Examples are life only, life with period certain , joint life (with same) etc. It is these terms only that will be fulfilled.

Tax treatment will vary depending on who it is left to, and  whether the annuity is contained in a Tax-Qualified Plan or  Non-qualified plan.
Excluding SPIAs, many annuity types contain an  accumulation (savings/growth)  phase, and an annuitization (distribution  /payout) phase. " The Distribution Phase of annuities is the  fundamental purpose for which the annuity vehicle holds its uniqueness  over all other saving and investment vehicles ", i.e. guranteed income  for some period including (if chosen), the life of the annuitant and  his/her spouse.
There are numerous choices, and whatever is chosen is what will be fulfilled by the insurance carrier. 

In the accumulation phase, the annuity will continue to accumulate  during the life of the owner according to the terms of the contract. "If  the owner dies, and the beneficiary is the spouse, the spouse can  continue the annuity with all the rights of the deceased owner  /annuitant. If the beneficiary is other than the spouse, the proceeds  would need to be paid within five years, or could be annuitized for the  life of the beneficiary."*

"If death occurs during the annuity payout phase, the IRS requires that  the balance of payouts due must be paid out at least as fast as they  would have been had the owner lived."
In Tax- Qualified Plans, the owner and annuitant are the same." When  death occurs, the beneficiary can take a lump sum payment. Taxes will be  due since none of these funds have been subject to prior taxation.
An alternative allowed by the IRS is minimum  required distributions (MRD) of tax-qualified plans. The beneficiary is  allowed to take minimum required distributions, depending on the age of  the annuitant at the time of their death. Income taxes are deferred on  all but the minimum distribution, and that balance is stretched  and continues to grow tax deferred. The beneficiary can then choose a  new beneficiary and when they die the new beneficiary can withdraw only  allowed minimum distributions and continue the tax deferred growth  process.* This can be an effective way to leave annuity funds in  tax-qualified plans to children and grandchildrenThese answers  are generally accepted provisions for deferred annuities. Any legal or  tax questions should be directed to your C.P.A. or Tax Qualified  Attorney.  

What kind of Riders are available ?  


Perhaps one of the most important, if not the most important rider
for many people (re fixed index annuities) is a guaranteed lifetime  income rider. This is stated here in generic terms, and may be known
by other life insurance carrier -specific names.


* much of the information contained in the answer on legacy to family was drawn from Annuities 101 written  by the late Pieter Boissevain,  CLU, and published by Three Trees Publishing. Additional material in  this answer came from Brett Decker, CLU, published by WCS Publishing.