Annuities come in many shapes and sizes, but there are some recurring themes. They serve the same fundamental purpose – you make payments, wait for a certain period of time, and get back a higher percentage than what you originally put in (either by one large payment or a series of regular payments).
How Do I Get An Annuity?
You can get an annuity through an insurance company. You can get the policy either by making one large lump sum payment, or making a series of payments over the course of your policy.
Annuities are contracts between you and your insurer. Not every policy is the same, because each contract has its own clauses within it. Interest rates, surrender periods, and payment amounts are among the factors that differentiate one policy from another.
What is the Benefit of Having Annuities?
Annuities are favorable because of how they grow – this can be through small interest rates or index fund performance. Your account grows more than it otherwise would if you were to keep your savings elsewhere. The growth is also tax-deferred, meaning that you will not have to pay income taxes as you continue to add to your funds.
The type of growth can be fixed, where your returns are determined by the interest rates in the contract. You can also have indexed or variable gains, which allow for account growth when the economy is strong.
When Can I Withdraw Funds?
With the exception of immediate annuities, you must wait a certain period of time before you’ll be able to make withdrawals from your account. Some plans will require a waiting period anywhere between three and 10 years.
Surrender periods are the time you must wait before you can access what has accumulated in your account. If you withdraw during this time, you will have surrender fees. However, Multi-Year Guaranteed Annuities (MYGAs) allow for partial withdrawals without penalties.
Funds can be released to you on a monthly, quarterly, or annual basis. Or, you can get all of your accumulated funds at once as soon as the surrender period ends.
How Are Annuities Taxed?
With annuities, you don’t need to pay taxes until you withdraw funds. When you withdraw funds, that constitutes income. The aspects of the funds being taxed depend on what you used to pay for your policy. If you use qualified funds, which are those taken from tax-deferred accounts like IRAs, you will pay taxes on the principal and interest when you make withdrawals. As for funds coming from other sources, you’ll only need to pay tax on the interest.
Find Out Which Annuity Plan Is Right For You
At Coastal Insurance Planning, we know what it’s like to weigh out options when it comes to saving for retirement. When you contact us, we will help guide you in finding the best annuity for you. We can help you get started on saving for your future today.