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| Annuity Homepage - Annuities - overview page 1 |
tax-deferred annuity quote request form |
| Annuity Bulletin Board |
(California) tax-deferred annuity quote request form |
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| On this page (2) |
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| Fixed Annuities vs. Bonds |
Annuity Advantages |
| Taxation of Annuitites |
Annuity Disadvantages |
| How and when can I withdraw money? |
Measuring financial strength - rating services |
| When is investment in an annuity appropriate? |
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| Annuities / the good and the bad |
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| Fixed Annuities vs. Bonds |
Annuity Advantages |
| An important difference between a fixed rate annuity |
1) An annuity can be used to protect and build your |
| and a bond (municipal or corporate) is interest rate |
cash reserve; |
| risk. Bonds have it, annuities don't. Interest rate risk |
2) The insurer from whom you purchase an annuity |
| is the risk that the value of the bond you invest in will |
guarantees (with the exception of variable annuities) |
| fall if interest rates rise and rise if interest rates fall. |
the principal; |
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3) Annuity interest rates, that you earn from single |
| The inverse relationship between bond prices and in- |
premium deferred annuities, are adjusted, usually |
| terest rates can create fluctuations in your invest- |
on an annual basis, to increase or decrease in line |
| ment portfolio that could result in a loss or a profit if |
with current market rates; |
| you sell your bond(s) prior to their redmption date. |
4) If you are retired, an annuity can provide you with |
| Therefore, on a daily basis, the price of the bond(s) |
a fixed monthly income with lifetime guarantees; |
| you invest in can fluctuate up and down like the price |
5) With an annuity you can "time" the receipt of the |
| of stocks. The difference between stocks and bonds |
income and shift it inot those tax years where the in- |
| is that stocks (may or may not) pay dividends and |
come is taxed at a lower rate; |
| not interest and are not redeemable on a specific |
6) Annuity interest rates compare favorably with most |
| date for a specific amount of money. |
other fixed income investments like bank certificates |
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of deposit (CDs); |
| On a daily basis, the price of the bond you hold may |
7) As compared to a taxable investment, with an equi- |
| be affected by the solvency/credit worthiness of the |
valent interest rate, such as a CD, an annuity will pro- |
| company or municipal agency that has issued the |
duce capital more quickly since te effective yield will |
| bond (i.e., credit risk), abstract market or psycho- |
be higher; |
| logical forces (i.e., market risk), &/or (as mentioned |
8) An annuity can be used as a method for directing |
| in the previous paragraph) interest rate fluctuations. |
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money to your heirs without the hassle of probate. |
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When you fill out an annuity application, you can des- |
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ignate a specific beneficiary or beneficiaries to receive |
| Taxation of Annuitites |
the money you have accumulated in your annuity con- |
| The income you earn from your annuity investment is |
tract. |
| tax-deferred. Tax-deferral allows you to legally delay |
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| the taxes on the interest income your annuity earns. |
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| Instead of having a portion of your annuity income |
Annuity Disadvantages |
| taxed away from you each year, this income remains |
1) If, at retirement, you choose to receive a lump sum |
| in your annuity account earning income. This com- |
distribution, instead of a fixed monthly income, you |
| pounding of otherwise taxable interest is one of the |
may incur a significant tax burden. |
| deferred annuity's most powerful features. |
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2) A cash withdrawal from an annuity, prior to age 59- |
| The income from your tax-deferred annuity is not tax- |
1/2, is generally subject to a 10% penalty tax with the |
| able until you receive it. Therefore, you can elect to |
following exceptions: |
| annuitize, or otherwise receive, the income you earn |
a) the person making the withdrawal is totally disab- |
| after retirement when you are in a lower tax bracket. |
led; |
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b) the withdrawal is part of a series of payments that |
| By clicking on the link appearing below this para- |
are substantially equal and made over the annuity ow- |
| graph, you can obtain a copy of IRS Publication |
ner's life expectancy or the life expectancies of the |
| 575 titled, Pension and Annuity Income. This IRS |
annuity owner and a beneficiary; |
| publication discusses the taxation of periodic and |
c) the withdrawal is received by a beneficiary or an es- |
| non-periodic annuity payments as well as other as- |
tate after the policyowner dies; |
| pects of annuity taxation. |
d) the withdrawal is related to investments made prior |
IRS Publication 575 (PDF: 232k/35 pages)
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to August 14, 1982; |
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e) the withdrawal is from an annuity contract under a |
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"qualified" personal injury settlement; |
| How and when can I withdraw money? |
f) the withdrawal is from a single-premium annuity |
| You can withdraw money from your annuity by con- |
with a start date no more than one year from the date |
| tacting the insurance company, where your annuity |
the annuity is purchased; |
| was purchased, and requesting a withdrawal. |
g) the withdrawal is from an annuity purchased by an |
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employer upon the termination of a qualified retire- |
| Keeping in mind that an annuity is a long-term invest- |
ment plan and held until the employee is separated |
| ment, the quick answer is that your money is avail- |
from service; |
| able at any time. However, depending upon the terms |
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| of the particular annuity you choose to invest in, your |
3) If it is necessary for a person to liquidate the an- |
| withdrawal may be subject to a company surrender |
nuity during the early years of the investment, cer- |
| charge during the first few years (which can be as |
tain fes and costs may be applicable depending |
| many as 9 or more) after you purchase the annuity. |
upon the terms of the annuity contract. |
| After the surrender charge period expires, you can |
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| withdraw your money without incurring the company |
4) An annuity (with the exception of a variable annui- |
| related surrender charge. In addition, cash withdraw- |
ty) is a conservative investment and does not offer |
| als from your annuity, prior to age 59-1/2, are gen- |
the flexibility and liquidity offered by certain other in- |
| erally subject to a 10% penalty tax. |
vestments. Therefore, annuities should be used in |
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conjunction with other investments to provide you |
| Many annuities offer provisions allowing you to with- |
with a well balanced investment portfolio. |
| draw a certain percentage of the money you accum- |
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| ulate in your annuity, or the accumulated interest, |
Measuring financial strength - rating services |
| without incurring a surrender penalty during the first |
It is important to understand the financial strength |
| few years when surrender charges are applicable. |
of the insurance company where you send your an- |
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nuity investment money. Because an annuity is a |
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| When is investment in an annuity appropriate? |
multi year or decade investment, you should keep |
| 1) As a retirement planning investment vehicle; |
an eye on the financial fortunes of the insurance |
| 2) In most financial planning situations where safety |
company holding you annuity investment dollars. |
| of principal is important or indicated; |
Companies, like people, change, and today's win- |
| 3) When a tax deferred accumulation of interest is |
ner can be tomorrow's loser. |
| appropriate or desired; |
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| 4) Where there is a need or desire to receive a spe- |
There are several rating services that measure the |
| cific level of interest for a long period of time without |
financial strength & stability of insurance compan- |
| risking the principal of the investment; |
ies. They are: |
| 5) In certain instances where a given level of liquid- |
Fitch Ratings |
| ity is desired; |
Fitch Ratings Definitions |
| 6) Where there is a need for an investment with im- |
A.M. Best Company |
| mediate and high collateral value; |
Standard & Poor's |
| 7) Where there is a need to have an investment with |
Standard & Poor's Ratings Actions/News |
| an income stream that cannot be outlived; |
Standard & Poor's Insurer Financial Ratings |
| 8) As a device for avoiding probate & passing a large |
Weiss |
| sum of money to an heir by contract to reduce the |
Weiss Life, Health, and Annuity Insurers |
| possibility of a will contest; |
Moody's Investors Service |
| 9) When a retired person wants a monthly income |
Moody's insurance company credit ratings |
| that is equal to or higher than other conservative in- |
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| vestments; |
You can buy a compilation of A. M. Best, Fitch, |
| 10) As a replacement for, or an alternative to, a |
Moody's, Standard & Poor's, and Weiss |
| monthly or other periodic investment plan. |
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the Insurance Forum publishers an annual com- |
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| Annuities / the good and the bad |
pilation of financial strength ratings of life-health |
| As is true with any investment, there are advanta- |
insurance companies. This list of approximately |
| ges and disadvantages to investing in an annuity. |
4,100 ratings, from A. M. Best, Fitch, Moody's, |
| Of course, an investment feature that may be an |
Standard & Poor's, and Weiss, also features a |
| advantage to one person, may be a disadvantage |
watch list of life-health insurance companies that |
| to another. In addition, there may be other advan- |
show signs of possible financial difficulty. An art- |
| tages and/or disadvantages to making an invest- |
icle explaining how to use these ratings and des- |
| ment in an annuity, not presented below, that are |
cribing the rating firms' rating categories and their |
| specific to your particular situation. |
rating distributions is also included in the publica- |
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tion featuring the ratings list. The cost for the In- |
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surance Forum special ratings issue (an annual |
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publication) is $20. An order form is available at: |
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http://www.theinsuranceforum.com/order.html |