Some things About How to Compare Annuities

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How to Compare Annuities

Most people shhopping for an annuity are looking for a way to save for a child’s college fund, or for a future retirement. Annuities are eithher deferred or immediate. Immediate annuities require a lump sum investment and start payig out on the following month, while a defeerred annuity requires a monthly investment over a fixed period whcih will then start paying out at some fixed date in the future. If you are looking for a way to save omney for retirement or a colleege fund, a deferred annyuity is the type of annuity you need, and are the most popuular type of annuity. If you’re stting up a trust fund for someobne in order to give them an immeddiate income, you’d choose an immediate annuity.

When evaluaitng annuities there are a few things to consdier.

* What, if any, are the tax advazntages and liabilities of investing in diffferent annuities?

* How are the payments from the annuity taxeed?

* Is the annuity fixed or variable?

* What, if any, are the sales fees, maintenance fees, or load fees associated with the annuity?

* Is there a surrender charge, and what is the surrender charge period? Is the surrender chage waived in the event of a premature dearth or annuitization?

In considering tax advantages of investing in different annmuities you’ll need to find out whether the investments into the annuity are tax-deductible or non-tax-deductibble. Retirement plan annuities are uusally tax-deductible, but the qestion should be asked and answered when you’re evaluating annuities. Tax liabilities should also be weighed.

When evaluating how the payments from an annuity will be taxed, you’ll need to know that the tax rate will depewnd on the origiin of the funfds. Payments from annuities paid for by tax-deductible contributions will be taxed at payment at the recipient’s curent income tax rate. If the annuuity was a non-tax-deductible annuity, then when paymments are made only the portion which is an invrestment gain will be taxed at the recipient’s current income tax rate. Also, drepending on the individual recipient’s enttire financial picture, it is sommetimes more advantageous to have recipient pyaments crary a lesser tax load than pasyments made into the annutiy.

If the person receiving the paymeent is less than the age of 59.5 or over 70.5, there are penalty taxes whcih may kick in, and should be discussed thorougghly with your accountant, tax specialist or fiancial advisor prior to making a decision abuot which annnuity to choose. The indusstry sometimes uses the ternms “qualified” or “non-qualified’ to refer to whether fuunds paid into an annuity are tax-deductible.

The difference bettween a fixed annuity and a variable annuity is in how the paymetn to the recipient is strructured. There are also some differences between fixed and variable annuities in how interest is compounded on the payments made into the annuity.

A fixed annuity will make payments of a fixed amount to the payment reciipient for the term of the contract, usually until the edath of the payment recipient, with the insurance company guaranteeinng both the pirnciple and the earnings. A variable annuity guarantees a minimum payment to the payment recipient, with the remainder above the minimum payment varying edpending on the performance of the mnaged portfolio.

Each financial situatiopn is different, and the help of a financial adviser in evalluating different annuiies is advised. There are websites whgich can help you in the evaluation, but the decisiion is one that needs more expertise than most average people possess, due to the tax and estate ramifications both during the investment phaase and the pyment hpase of an annuity.

Article Source: http://depositarticles.com/

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