What is an Annuity?
  • A contract between and individual and an insurance company to pay out a benefit at a later date.
  • An accumulation phase and distribution phase
  • Can pay an income for life; regardless of the amount of principal going in.
Why all this interest?
  • 80% of Americans: Not Prepared for Retirement
  • Need for stable, long term income
  • Paltry CD rates (taxable) vs. Inflation
  • Seeking higher returns with safe investment haven
    • Supplemental income
    • Long term care planning
    • Income to surviving spouse
What are different types of annuities?
  • Variable Annuities
  • Fixed Annuities & Fixed Index Annuities
  • Deferred Annuities
  • Single Premium Immediate Annuities

What Matters to Consider?

  • Risk Tolerance
  • Emergency reserve
  • Collage Planning
  • Loss of Income
  • Wealth increase
  • Retirement Planning
  • Loss of Life
  • Health Care & L TCi
  • Taxes
  • Income for Life
  • Wealth Transfer & Distribution

T.E.A.M. – it is important to work with other professionals during planning

  • Financial Planner/Register Representative
  • Insurance Agent
  • Employee Benefits Company
  • P&C Agent
  • Brokerage Firms
  • CPA
  • Attorney for Wills & Trusts
  • Elder Care Expert
Why buy?
  • Demographics
  • Longevity
  • Volatility
  • Pensions
  • Guarantees
  • Guaranteed Income for Life
  • Reduce Social Security Tax
Objective of Annuities
  • Objective
    1. Tax Deferral
    2. Income Stream that cannot be outlived
    3. Guaranteed Growth (fixed or variable)
  • Classification
    1. Non-Qualified
    2. Qualified
    3. Roth

**** Protects against creditors including court judgements and Probate Free.  As of today’s current tax laws -subject to chg. ****

Estate Taxation

The full value of your traditional and Roth IRAs and annuities as of the date of your death will be included in your federal estate tax base. Tax Guides will show you the federal estate tax exposure and the changes in place for 2009, 2010, and 2011.

The combined estate tax and income taxes on your IRAs and annuities can go as high as 80 percent of the value of your IRA.

Federal estate tax rate is 45 percent, and the Income tax rate your beneficiaries pay Is 35 percent, then 80 percent of the value of your IRA will be paid in taxes.

IRAs and annuities avoid probate – are payable directly to a named beneficiary, they are not subject to federal estate taxes.

Unfortunately, this isn’t true. They will be included in your taxable estate Over the exemption amount for that year, will be taxable.

Taxation after death of annuitant

Beneficiary taxation

After tax contributions made by the deceased

    • remain untaxed when received by the beneficiary.
    • tax-deferred earnings within the annuity will be taxed as ordinary income to the beneficiary.

Begun receiving lifetime payments, no benefits would be left for the annuity beneficiary.

    • contract called for a fixed term guaranteed payments, the beneficiary would received those remaining payments taxed at the deceased’s exclusion ratio.

Owner died before beginning annuitization, provision may be made for either a lump sum distribution or a series of payments.

Series of guaranteed payments

    • Would not ba required to pay taxes on any of the Payments until the deceased owner’s contribution ware fully received.
    • Any payments beyond that would be fully taxed as ordinary income.

An annuity beneficiary, can lose a lot of that taxable portion of the annuity. A annuity owner decides not to annuitize, he may use his annuity’s value to switch to another option better suited to his beneficiary.

Annuity taxation

Annuities are especially attractive to retirees …. But many retirees will die before tapping their deferred annuity. What are the tax consequences to the annuity beneficiary and should other options be arranged?

A Deferred Annuity offers a distinct tax-benefit.

    • Earning grow tax-deferred
    • Tax-deferred earnings will eventually be taxed upon withdrawal
    • Contributions to the annuity will not be taxed upon withdrawal
    • Non-qualified annuities which are funded with after tax contributions.

Annuitant’s taxation

    • Partial withdrawal is made, the IRS presumes that earnings coma out first
    • Under regular monthly payments – a portion of each payment is not taxed
    • Treated as a return of your nontaxable contributions.
    • Exclusion ratio calculated by the insurance company designates that untaxed portion.