Annuity Funding Explained
Tuesday, October 31, 2006
When it comes to annuity funding and annuities in general many
people are confused. The problem is often because there are so
many different kinds. There’s single or flexible-payment, fixed
or variable, and deferred or immediate.
Regardless the type of annuity funding you’re ultimately
interested in, all annuities are financial contracts which have
been created to provide you with a good source of income in your
retirement years.
Because of the long term nature of annuity funding it’s important
you understand your options and have all your questions answered
by an expert in the field prior to investing any of your money in
a fund. The first step is to find a financial company you can
trust and then explore your options.
Annuity funding begins with deciding on what type of annuity best
suits your needs.
You can choose from a number of annuity options which include a
lifetime income, a guaranteed period income where your
beneficiaries would receive any remaining payments, a joint and
survivor option for couples as well as many other options that a
financial advisor or insurance representative can tell you
about.
In many cases, options can be mixed and matched to provide you
with the best kind of annuity funding possible.
The money contributed to any annuity funding may be in post-tax
dollars. The advantage to this is that you can contribute as much
money as you would like. However before you put any after-tax
savings into any kind of annuity funding, it’s often advisable
for you to put the maximum pre-tax amount into a retirement plan.
When an annuity is used to fund a retirement plan, contribution
limits usually apply. Federal tax laws also generally require
that you begin taking minimum distributions by April 1 of the
calendar year following the year in which you reach age 70.
Annuity funding earnings are taxed as ordinary income. It’s
important to note that if your ordinary income rate at retirement
is greater than the current capital gains rate for other
investments, you would actually pay more in taxes.
The upside is you do receive a tax deferral on any earnings.
Other investments you may have could be subject to ordinary
income as well as capital gains taxes annually, even if you
have not cashed in the investment.
Protect yourself and your money by exploring the pros and
cons of all your annuity funding options prior to committing
yourself to anything.
The bottom line is that since annuity funding is a long-term
investment vehicle you'll want to make sure that any annuity
company you select will be in business for the length of
your fund.
posted by Dennis Cheesman @ 9:26 AM,
