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Annuities
What
is an annuity?
An annuity is a tax deferred
retirement savings vehicle issued by an insurance company. An annuity
offers unique benefits: the advantages of tax-deferral and the optional
security of a guaranteed lifetime income stream at withdrawal.
What
are some of the benefits of an Annuity?
Tax-deferral potential.
With an annuity, the return on your
principal is tax-deferred, with taxes only payable at the time of
withdrawal. Simply put, this means taxes will not be due while you
accumulate your retirement dollars. Taxes are only due when you decide to
access your funds. The result over the long-term is additional dollars
available to earn interest and/or investment returns. With Qualified
Annuities the principal is pre-tax, and is not taxed until it is
withdrawn. If purchasing an annuity with before-tax dollars (either
through a Qualified Plan or with rollover amounts), you should understand
that while the annuity contract does not provide additional tax-deferral
benefits, it does offer features such as a death benefit, income options,
and other non-tax-related benefits
The
security of guaranteed* income.
When you are ready to withdraw your
annuity funds, you may choose to receive a payout in a form unique to
annuities: a guaranteed income stream. Depending on the payout option you
choose, you may receive either fixed or variable amounts for a range of
time periods and guarantee levels. Once your payout income begins, you
will pay taxes only as distributions are paid to you a portion at a time.
The money earmarked for future taxes remains in your account earning
interest.
*The guarantee is backed by the financial strength of the issuing company.
What
are some other considerations of an Annuity?
There are certain charges and
expenses associated with an annuity. These vary depending on the annuity
and may include the following types of charges: mortality and expense risk
charge, administration charge, contract charge, funding option expenses
and a withdrawal charge. All charges are fully discussed in the prospectus
for each variable annuity.
What
are some Annuity Options?
With an annuity you may elect to
accumulate annuity dollars in one of two ways. If you prefer a fixed rate
of return, you may opt for a fixed rate annuity. Or, if you are interested
in the growth potential of investing in the stock and bond market, you may
select a variable annuity. In terms of access to these funds, you may
elect an immediate or deferred payout. Generally, once you begin receiving
annuity payments, you cannot change the method or frequency of the
payments.
Time-frames:
- Deferred Annuity. A deferred annuity has
two distinct phases: accumulation and payout. During the accumulation
phase, you make contributions to the annuity with either one lump sum
or periodic payments. The contract will shift into the payout, or
withdrawal, phase when you elect to have your annuity dollars
distributed to you in the form of an income. Generally, the issuing
insurance company guarantees this income for life and/or certain time
periods.
- Immediate Annuity. With an immediate
annuity you bypass the accumulation phase by depositing a single
premium payment. This lump-sum premium payment will immediately begin
to generate an income stream. This is usually known as a "Single
Premium Immediate Annuity," or SPIA for short.
Note: Taxes are due upon withdrawal and
penalties may apply if money is withdrawn prior to age 59 1/2.
Deferred
Annuity Program Types:
- Nonqualified Annuity. For tax purposes,
annuities are classified as qualified or nonqualified. Anyone may
purchase a nonqualified annuity. Only monies that have already been
taxed can be contributed to a nonqualified annuity. Any interest
and/or gains grow tax deferred until withdrawn at some time in the
future.
- Qualified Annuity. A qualified annuity
must meet a number of requirements under the Internal Revenue Code. It
is generally offered through an employer-sponsored plan. Employee
contributions are made with pre-tax dollars, thus lowering the
employee's current taxable income. These contributions then accumulate
within the annuity on a tax-deferred basis. An Individual Retirement
Annuity (IRA) is an example of a qualified annuity offered directly to
individuals.
Deferred
Annuity Product Types:
- Fixed Annuity. With fixed annuities,
earnings accumulate based on a fixed rate of return. Your principal,
or premium payment, and the rate of return are guaranteed by the
issuing insurance company.
- Variable Annuity *. A variable annuity
accumulates earnings based on the performance of the underlying
investments of the annuity contract. Unlike fixed annuities, principal
and rate of return are not guaranteed. Your account value will
fluctuate as the stock and bond markets move up or down.*
The aforementioned material is a product and service
listing and is not intended to be an offer for the sale of securities.
Securities products are offered by prospectus.
Securities offered through Registered Representatives
of Tower Square Securities, Inc, a securities broker/dealer (Member NASD/SIPC).
Bollinger Insurance is a separate entity from Tower Square Securities, Inc.
Craig Johnston, Aaron Katzoff, Paul Schilling, Shawn
Hotz, Susan Shamlian, Paul Smith, and Natalie Summerfield are registered
representatives of Tower Square Securities. They are collectively
registered for the sale of securities products in CA, NC, NJ, and NY and are
licensed to sell life insurance products in all 50 states. Craig Johnston's California Life and
Variable license number is 0D25291
Investments in a variable annuity may yield
positive or negative results and investors may lose their original
investment.
Immediate Annuity Product Type:
Single Premium Immediate Annuity (SPIA). To
start an SPIA, you deposit one premium payment from your retirement plan
or other appropriate sources of funds. By establishing an SPIA you can be
paid a guaranteed income for as long as you live. Your income payments
will be based on principal as well as interest, rather than interest only.
With an SPIA, you have numerous payout options to choose from. Here are a
few examples of your annuitization options*.
-
Life Annuity with No
Refund. With this option, you will receive distributions for as
long as you live. Upon your death, payments cease; there is no
beneficiary. As a result, the income from this option is
generally higher than the income from a life annuity which
offers a refund.
-
Life Annuity with
Cash Refund. In addition to receiving distributions for as long
as you live, you are guaranteed at least the purchase value of
the annuity. Should you die before receiving all of the money
you paid into the contract, your beneficiary will receive the
balance in a lump sum.
-
Life Annuity with
Installment refund. This option is similar to a Life Annuity
with Cash Refund except that your beneficiary will receive the
balance in installments rather than in a lump sum.
*These options are available
by annuitizing a deferred annuity as well as by purchasing an immediate
annuity.
Call 800-350-8005, extension
8153 and ask for your free booklet "Exploring Annuities".
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