Select Annuities Examples
At the National Senior Advisory Board, we understand that the key
to successful investment portfolios with annuities comes from taking
the time to truly understand your unique life requirements. Through
discussing your personal needs, expectations and financial objectives,
we are able to ensure that the annuity you select is the absolute
best for you.
Some very popular programs involving annuities include:
Single Premium Deferred Annuity
A single premium deferred annuity, or SPDA, is an annuity you purchase
with a single payment. You get a guaranteed interest rate for a
specified period of time, and the taxes on the interest you earn
are deferred until you make a withdrawal. Single Premium Deferred
Annuities are ideal for anyone who wants to let their money grow
risk-free while deferring income taxes, with the goal of creating
income later in life.
Immediate Annuity
An immediate annuity guarantees the holder a fixed monthly income
that starts as soon as the investment is made. The income then continues
for the rest of your life, with the amount set based on the size
of your investment, your age, current interest rates, and the maximum
time you have chosen for the company to pay out - even if you were
to die. If you hold an immediate annuity outside a retirement account,
part of each monthly payment is considered a return of principal,
so that portion of the income is not taxed. The return of principal
along with interest your funds are generating causes a higher monthly
payment than you could probably get elsewhere on a guaranteed basis.
Split Annuities
A split annuity is a very tax efficient and intelligent investment
vehicle combining two different types of annuities - a single premium
deferred annuity and a single premium immediate annuity. One annuity
repays you a set sum of money each and every month over a specified
period of time. The other annuity is left in place to grow on a fixed
interest basis, with the goal being that by the time funds in your
immediate annuity are depleted, the single premium deferred annuity
will be restored to your original starting principal. This allows
you to then restart the process with new prevailing interest rates.
Equity Indexed Annuity
Equity Indexed Annuities were established in the mid-1990's by insurance
companies to compete with very popular indexed mutual funds. The index
annuity tracks a particular stock-market index, such as the S&P 500,
NASDAQ, or DOW, with the rate of return usually being a set percentage
of the increase that index shows in a given year. This is a very attractive
annuity for many investors because the principal investment is protected
and guaranteed from losses in the equity market, while gains add to
the annuity's return.
Individual Retirement Account (IRA)
An IRA is a tax-advantaged personal savings plan that lets an individual
set aside money for retirement. All or part of the participant's
contributions may be tax deductible, depending on the type of IRA
chosen and the investor's personal financial circumstances. Distributions
from many employer-sponsored retirement plans may be eligible to
be rolled into an IRA to continue tax-deferred growth until the
funds are needed. In the year 2001, you can contribute up to $2000
to your IRA. If you are married, you can also contribute up to $20000
more for your nonworking spouse.
Roth IRA
With a Roth IRA, you may not deduct your contribution, but your
contributions can grow income tax-free. When you withdraw money
from a Roth IRA at retirement, you will not owe any taxes on that
money, no matter how much the money has grown in value, provided
you have followed IRS guidelines. In addition, you can withdraw
your own contributions at any time without penalties or taxes, regardless
of your age and how long the money has been in the Roth IRA. Any
gains or earnings however must stay in the Roth IRA until you have
turned 59 ½ and you've held your account for more than five years
before you can withdraw them without tax liability. A Roth IRA allows
you to amass a lot over the long term in exchange for not taking
a tax deduction now. Plus you do not have to begin taking withdrawals
at age 70 ½ as you do with traditional IRAs.
Medicaid Annuity
A Medicaid annuity is a fairly new loophole that helps individuals
going into a nursing home down size their personal assets, allowing
them to qualify for Medicaid assistance. The way a Medicaid annuity
works is an elderly person desiring to go into a nursing home hands
over almost all of their assets to an insurance company. The insurance
company then agrees to send it all back, with interest, in monthly
payments over a few years. The person no longer has significant
assets, but does have a steady income stream, and is now made eligible
for Medicaid. Since Medicaid won't cover nursing home care if an
individual has assets of more than about $2,000 (not counting a
house or car), a Medicaid annuity can be a critical tool in ensuring
future capability to meet personal care costs without losing everything
you have.
Charitable Annuity (Gift Annuity)
A charitable gift annuity is a contract between a donor and a foundation,
under which the foundation guarantees payment of an annuity, unlike
a trust which pays the annuity from its assets alone. Two features
in particular make charitable gift annuities appealing. An individual
may specify whether he or she wants an immediate annuity, with payment
to begin not later than one year from the date of the gift, or a deferred
gift annuity, from which payments are not to begin until a specified
future date. In addition, the income stream from such an arrangement
can be higher than current market rates.
Variable Annuity
With billions of investment dollars going into mutual funds, insurance
companies created a competing product called Variable Annuities
that allows you to invest your money within investment portfolios
called subaccounts. Unlike other annuities, a variable annuity does
not guarantee a set rate of interest or earnings, being based instead
off fund performance and account averages. However you can buy,
sell and switch funds at any time without incurring taxes until
you begin to withdraw your original investment and income after
age 59 ½. At that time your gains are taxed as ordinary income.
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