An annuity is a contract between an insurance company and you. You will make a lump-sum payment or a series of payments in exchange for regular disbursements. This could be immediate or at a certain point in the future. The main goal is to provide a steady flow of income, usually during retirement. The funds accrue on a tax-deferred basis and can only be withdrawn at a certain point without penalty.

You can choose when you want to start receiving payments. If the payment begins immediately, it is known as an immediate annuity. If the payment starts at a predetermined date in the future, it is known as a deferred annuity.

You can also choose the duration of the payments by choosing to receive payments for a certain period, such as 10 years, 25 years, or for the rest of your life. Keep in mind that lifetime payments can reduce the amount of each check, but will ensure you do not exhaust your assets.

Types of Annuities

There are three types of annuities: fixed, variable, and indexed annuities. Each type has its payout potential and risk. Under fixed annuities, the insurer pays out a guaranteed amount. There are two variations of fixed annuities: fixed immediate annuities and fixed deferred annuities.

Fixed immediate annuities instantly pay out a fixed amount, while fixed deferred annuities pay out a fixed rate later. However, the downside to fixed annuities is that they can have a modest annual return depending on the insurer and how well they invest the funds. Variable annuities offer the chance of getting a potentially higher return, though with greater risk than fixed annuities.

In variable annuities, you can select from various mutual funds that will go into your sub-account. This means that variable annuities are entirely dependent on how well the stock market performs. This is a greater risk than fixed annuities because if the stock market doesn’t do well, you could lose your investment. It is for this reason that Solid Rock Insurance Solutions does not deal in variable annuities, only fixed. What is the most important is that you protect your money while not being exposed to the risks of typical market investments. Our goal is to put you in a better place; to help you in your retirement planning.

Under indexed annuities, a percentage of your return is based on the performance of a market index. However, these types of annuities can make earnings higher than fixed annuities can when a market does well. They also have a guaranteed minimum interest rate. The types of annuities we focus on here at Solid Rock are those which provide you safety in your investments, tax deferred growth, a positive yield, liquidity, and only those which fall under estate planning rules to avoid the probate process upon death.

Tax Treatment

It is important to consider the tax treatment on annuities. Though the balance grows on a tax-deferred basis, the payout is subject to income tax. The disbursements are taxed at the buyer’s regular income tax rates. The mutual funds you hold for more than a year are taxed at the long-term capital gains rate. However, the money you pay to an annuity does not reduce your taxable income, unlike a traditional 401(k).

At MedSupforSeniors, we offer personalized advice from licensed and certified agents who act as both Senior Benefits Advisors and Retirement Income Specialists. We’ll help you get the best plan for you based on your needs and budget. Contact us today for more information.

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