ANNUITIES
TAX DEFERRED
ACCUMULATION
FEATURES
◘ During the accumulation phase, the fund grows tax deferred, it does not grow tax free. If the annuity was not purchased as part of a qualified retirement program such as an IRA, 401(k), TSA, or 457 plans, income taxes are paid on the earnings when money is ultimately paid out. If the annuity is part of a qualified plan the entire fund is subject to income taxes as it is withdrawn.
◘ Surrender charges for early withdrawals. Most offer partial withdrawals free of surrender charges.
◘ If you withdraw money from your annuity before age 59 ˝ it is called a “pre4mature distribution” and is subject to an additional 10% IRS penalty.
◘ If a premature death should occur, the accumulated funds within the annuity are transferred to the named beneficiary, avoiding probate costs.
◘ Annuities can vary by payment mode and are available as “single premium” (purchased with one-time payment) or “flexible premium” (purchased with recurring periodic payments). They also vary by timing of the annuity income and may be available as a “deferred annuity” (which means that annuity income payments are deferred until later) or as an “immediate annuity” (which means that annuity income starts immediately).
◘ For fixed and equity indexed annuities there is safety of principal and earnings.
◘ Variable products are subject to mortality and expense charges and administrative fees not typically found with other investments.