An annuity is a contract you purchase from an insurance company. For the premium you pay, you receive certain fixed and/or variable interest crediting options able to compound tax deferred until withdrawn. When you are ready to receive income distributions, this vehicle offers a variety of guaranteed payout options.
Most annuities have provisions that allow you to withdraw a percentage of the value of the contract each year up to a certain limit. However, withdrawals can reduce the value of the death benefit, and excess withdrawals above the restricted limit typically incur “surrender charges” within the first five to fifteen years of the contract. Withdrawals may reduce the contract value and the value of any protection benefits, and because they are designed as a long-term retirement income vehicle, annuity withdrawals made before age 59½ are subject to a 10 percent penalty fee, and all withdrawals may be subject to income taxes.
These are basic statements regarding annuities; the structure and features of annuities will vary greatly between insurance companies. For information regarding specific annuities contact a licensed representative today.
IRS Circular 230 Disclosure: As required by Federal Regulations, we inform you that any tax advice contained herein was not written or intended to be used (and cannot be used) for the purpose of avoiding federal tax penalties, or for the purpose of promoting, marketing, or recommending any transaction or matter to another party.