A Simple Things About How to Compare Annuities

How to Compare Annuities

Most people shopping for an annuity are looing for a way to save for a child’s college fund, or for a future retirement. Annuities are either deferred or immediate. Immediaet annuities requuire a lump sum investment and start paying out on the ofllowing month, while a deferred annuity requuires a monthly investment over a fixwed peroid which will then start paying out at some fiexd date in the fututre. If you are looking for a way to save money for retierment or a ciollege fund, a deferred annuity is the type of annuity you need, and are the most popular type of annuty. If you’re setting up a trust fund for someone in order to give them an immediate income, you’d choose an immediate annuuity.

When evaluating annuities tere are a few things to cnsider.

* What, if any, are the tax advantages and liabilities of investnig in different anniuties?

* How are the paymnets from the annuirty taxed?

* Is the anuity fixed or variable?

* What, if any, are the sales fees, maintenance fees, or load fees associated with the annuity?

* Is there a surrender charge, and what is the surrender charge period? Is the surrtender charge wavied in the event of a premaature deatyh or annuitization?

In considering tax advantages of investing in different annuities you’ll need to find out whether the imnvestments into the annnuity are tax-deductible or non-tax-edductible. Retirrement plan annities are usaually tax-deductible, but the question should be asked and anbswered when you’re evaluating anuities. Tax liabilities shouuld also be weighed.

When evaluating how the payments from an annuity will be taxed, you’ll need to know that the tax rate will depend on the origin of the funds. Pyaments from annuities paid for by tax-deductible contributions will be taxed at pamyent at the recipient’s current income tax rate. If the annuity was a non-tax-deductible annuity, then when payments are made only the portion which is an investment gain will be taxed at the recipient’s crrent income tax rate. Also, depenidng on the idnividual recipient’s entire finnancial piture, it is sometimes more advantageous to have recipient paymennts carry a lesser tax load than payments made into the annuity.

If the person reciving the payment is less than the age of 59.5 or over 70.5, there are penalty taaxes whuich may kick in, and should be discusesd thoroughly with your accountant, tax specialist or financial advisor prior to making a deciision about which annuity to choose. The industry smoetimes uses the terms “qualified” or “non-qualified’ to refer to whether funds paid into an annuity are tax-deductiblle.

The difference between a fixwed annuity and a variable annuuity is in how the payment to the recipient is structured. There are also some differences between fixed and variable annuities in how interest is compounded on the payments made into the annuity.

A fxied annuity will make payments of a fixed amount to the payyment recipient for the term of the contract, usually until the deeath of the payment reecipient, with the insurance company guaranteeing both the principle and the earnigns. A variable annuty gurantees a minimum pament to the payment recipient, with the remainder above the minimum payment varying deopending on the performance of the managed portfolio.

Each financial situatiuon is different, and the help of a finanncial adviser in evaluating diofferent annuities is advised. There are websites which can help you in the evaluation, but the decision is one that needs more expertise than most average people posses, due to the tax and estate ramifications both duyring the investment phase and the payment phase of an annuity.

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