Annuities As Investments
Annuities are not
designed to be short-term investments. They work best
over the long run. Just like other investments you are
familiar with, you can invest in an annuity that earns
either a fixed or a variable return.
Fixed Annuity –
The insurance company can pay you a specified rate
of interest on the money you invest. The interest
rate might change from year to year, but you will
always know how much your money is earning.
Variable Annuity
– The value of this investment may go up or
down, depending upon how well the stocks or bonds
in the company’s investment portfolio do. (Similar
to a mutual fund)
The Benefits Of Investing In An Annuity
Tax-Deferred Investment
– Unlike many other investments, annuities have
a tax-shelter feature that makes them very appealing.
The money an annuity earns each year is not taxed as
income. Annuities grow tax-deferred until the money
is withdrawn. (Early withdrawals may be subject
to a policy surrender charge. Withdrawals prior to age
59 1/2 are subject to a 10% Federal
tax penalty.)
As an investor, you may be seeing thousands
of dollars going out each year to pay income taxes on
your investment income. If you invested in an annuity,
those dollars could still be yours, working for you,
earning more money inside the annuity.
Income – Once
regular annuity payments begin, the Annuity Company
will continue to make the annuity payments as specified
in the agreement. If the annuity is a life annuity,
you will receive an income for life, regardless of how
long you live. If the annuity is a joint-and-survivor
annuity, the payments will continue over two lifetimes
– yours and your spouse’s.
Annuities Qualify for Direct
Rollovers – Since January 1, 1993, if
you receive any lump-sum distribution from a company
pension or profit-sharing plan personally
rather than having it transferred directly to another
eligible plan, employers are required to withhold 20%
of the amount. You can avoid this withholding trap by
having your money transferred directly into a qualifying
annuity.
Annuities Avoid Probate
– A final advantage is that annuities do not have
to go through probate when you die. Books have been
written on how to avoid probate. In many states, the
legal fees involved can make the probate process very
expensive, reducing the amount the heirs will receive.
In addition, the probate process is often drawn out,
sometimes for years, delaying the settling of the estate.
But since an annuity is a life insurance
contract, all of its proceeds are distributed immediately
to the beneficiary under the terms of the contract,
completely bypassing probate. The value of the annuity
generally is included in your estate for estate tax
purposes, but not for probate. |
