Annuity Basics   What is an annuity?   Annuities in your IRA, 401(k) and other retirement plan     Annuity Types   Fixed annuity   Equity Indexed annuity   Deferred annuity   Immediate annuity   How do I fund or buy an annuity?   Income or distribution options     Tax Treatment   How are annuities taxed?     Safety   Safety What is an annuity? An annuity is a savings vehicle issued by reputable insurance companies. Annuities offer very competitive interest rates or rates of returns. Unlike many other savings vehicles (CD’s or saving accounts) annuities offer tax-deferred growth. What is tax-deferred growth? This means that you do not pay taxes as long as your principal and interest is compounding. You can also pay a lower tax on random withdrawals because you control the tax year in which the withdrawals are made, and only pay taxes on the interest withdrawn. Tax deferral gives you control over an important expense - your taxes. Annuities can be designed to provide a lifelong stream of income which you cannot outlive. What are my income or distribution options?   There are different types of annuities, which means that an annuity can be custom tailored to fit your needs and wants. Annuities can be used as CD alternatives or investment alternatives   Fixed Annuities Equity Indexed Annuities Immediate Annuities Deferred Annuities Back to Top Fixed Annuity: Fixed annuities earn a guaranteed rate of interest for a specific time period, such as; 1, 3, 5 or 10 years. Once the guarantee period is over, you can select between a number of income options or lock in the interest for a new period of time. This guarantee of both interest and principal makes fixed annuities somewhat similar to Certificates of Deposit (CDs) purchased from a bank. Compare annuities vs. CD’s Annuities can be designed to provide a lifelong stream of income which you cannot outlive. What are the income and distribution options? Annuities are issued by reputable insurance companies and fully backed by the insurance company’s assets. Unlike CD’s, annuities are not FDIC insurance which means that your protection is not limited to $ 100,000. Back to Top Equity Indexed Annuity: Equity indexed annuities (EIA’s) have become the most popular type of annuity. Even though EIA’s are categorized as a ‘fixed’ annuity they can be considered a safe investment alternative. How so? EIA’s participate in the stock market while guaranteeing your principal and locking in your gains. This means that you can never loose money or earned interest, even though you are ‘invested’ in the stock market. EIA’s are the only product which offers stock market related gains with the ultimate loss protection. More information on Equity Indexed Annuities Back to Top Deferred Annuity: Both fixed and equity indexed annuities can be a deferred annuity. A deferred annuity allows you to postpone paying income taxes on any earnings until you withdraw money, typically during retirement, when you may be in a lower tax bracket. All earnings grow tax-deferred. You can put in as much money as you want. Unlike Individual Retirement Accounts (IRAs), there is no IRS restriction on the amount that can be contributed annually to deferred annuities with your after-tax money. You can, however, use a deferred annuity to fund your traditional or Roth IRA, in which case you would operate within IRA limitations. Deferred and immediate annuities can provide a life long, guaranteed income to you or your heirs. What income options are there? Advantages of deferred annuities: Deferred annuities can be a great way to accumulate money for retirement, if you want retirement income in addition to what you will receive from social security or your pension plan. They are particularly effective if you have many years before retirement or if you want to reduce taxes during retirement. Your money grows tax deferred, which means you pay no taxes on earnings until you begin to withdraw your money. Withdrawing Money from a Deferred Annuity: When you're ready to start withdrawing money from your deferred annuity, you can choose how you want to receive your money. You can take it all out in a lump sum, take it as needed, or receive it in a steady stream of periodic payments which you cannot outlive. What are my income options? Back to Top Immediate annuity: Immediate annuities are typically funded with a one time payment. Distribution or payment of income typically begins within a month. The income payments you receive from fixed, immediate annuities are based on the amount you contribute, your age and the interest rate environment at the time of purchase. Immediate annuities can provide dependable financial security: a stream of income payments guaranteed to continue for the rest of your life or for the period of time you select. If you are about to retire, an immediate annuity may be a good place to put a lump sum of money accumulated for retirement through another savings or investment vehicle. You also can convert your deferred annuity into an immediate annuity to start receiving income. What are my income options? Advantages of an immediate annuity: Among the reasons to consider an immediate annuity are the following: An immediate annuity is a financial vehicle that can provide guaranteed income for life. The income payments you receive can supplement your other income sources, such as social security and pension payments, which may not provide enough income by themselves. You choose how often to receive your income payments. Whether monthly, quarterly, semi-annually or annually, there's a payout plan to fit your particular needs. You pay income taxes only as you receive your payments. When you receive income payments, you will be taxed on the portion of the payments that is earnings. The portion that is principal, which represents your initial deposit made with money that had already been taxed, is not taxable. You may lessen your financial worries. Financial management can be a burden in your retirement years. Because you don't know how long you'll live, it's hard to be sure your resources will last as long as you need them. If you withdraw too much of your nest egg, your future income can suffer or you may run out of money entirely. If you are too thrifty when it comes to spending your nest egg, your level of living may suffer. Immediate annuities can remove some of these burdens by providing you with a predictable fixed payment for life, so you can concentrate on enjoying your hard-earned retirement. Back to Top How do I fund or buy an annuity? Single Premium Annuity: Annuities can be funded by check, cash or transfer from another account. You can make one lump-sum payment to purchase a single-premium annuity. Some companies allow you to add to an existing annuity, if not, you can buy a new one. Flexible Premium Annuity: You can make ongoing contributions to a flexible-payment annuity. You can contribute money at regular or even irregular intervals anytime you want. Back to Top What withdrawal options do I have? You can choose from a number of options for receiving income from an immediate annuity. Lifetime income for You: You can opt for income, guaranteed by the insurance company, for the rest of your life. Payments cease upon your death. Lifetime income with a guaranteed period: You will receive income for life. If you die before the guarantee period is over, your beneficiaries will receive the remaining number of guaranteed payments. Lifetime income for two: You can opt for income guaranteed for the rest of your life and the life of another person, such as your spouse. Guaranteed income for two people is known as a joint and survivor option, which guarantees that income payments will continue for the life of the primary owner and a second person. The insurance company that issues your annuity makes the guarantee. Back to Top How are annuities taxed? All annuities grow tax-deferred. This means that NO taxes are due while your money is compounding. Tax deferral gives you control over an important expense - your taxes. Any time you control an expense, you can minimize it. The longer you can postpone this particular expense, the greater your rate or return will be when compared to the rate of return you would have with a fully taxable account. By postponing taxes with a tax-deferred annuity, your money compounds faster because you can earn interest on dollars that otherwise would have been paid to the IRS. You can also pay a lower tax on random withdrawals because you control the tax year in which the withdrawals are made, and only pay taxes on the interest withdrawn. The power of tax-deferral illustrated:   Tax-deferred account:  Taxable account:  Initial contribution: $ 100,000  Initial contribution: $ 100,000  Interest rate: 6 %  Interest rate: 6 %  Balance after 10 years: $ 179,085  Balance after 10 years: $ 152.643  Taxes due (28 % tax-bracket): $ 11,863  Taxes due: 0  Balance after taxes: $ 167,222  Balance after taxes: $ 152,643 ANNUITY ADVANTAGE: $ 14,579 Back to Top Safety: Your tax-deferred annuity is safe. A qualified legal reserve life insurance company is required to meet its contractual obligations to you. These reserves must, at all times, be equal to the withdrawal value of your annuity policy. In addition to reserves, state law also requires certain levels of capital and surplus to further increase policyholder protection. Legal reserve refers to the strict financial requirements that must be met by an insurance company to protect the money paid in by all policyholders. These reserves must be at all times, equal to the withdrawal value (principal plus interest less early withdrawal fees, if any) of every annuity policy. State insurance laws also require that a life insurance company must maintain certain minimum levels of capital and surplus, which provide additional policyholder protection. Back to Top Annuities in your IRA, 401 k or other retirement plan: Unlike Individual Retirement Accounts (IRAs) and other retirement plans, there is no IRS restriction on the amount that can be contributed annually to deferred annuities with your after-tax money. You can, however, use a deferred annuity to fund your traditional or Roth I RA , SEP I RA , Profit sharing plan, etc, in which case you would operate within I RA limitations. The features of Equity Indexed annuities (EIA's) have proven very beneficial for many retirement accounts. What is an Equity Indexed Annuity?

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