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We will look at the most common types of annuities and the premium options to fund these vehicles.
The name of the annuity is usually very descriptive of the type and premium option available. Joint life annuity Answer: ADo not confuse the joint life annuity with the joint-and-survivor annuity.
Simply put, an annuity is a vehicle for liquidating a sum of money.
Annuities have received a bad reputation in the last few years because of advisors abusing them for high commission payouts.
For example, single premium immediate annuity (SPIA) is paid by the annuitant in one single premium up front and starts paying out benefits immediately. A joint life annuity ceases payments after the death of the first annuitant, whereas, the joint-and-survivor continues to pay benefits until the second annuitant dies.
Types There are four common types of annuity's uses; refund, single life, joint and survivor, and period certain. - Guarantees benefit payments for a certain period of time, such as 10, 15 or 20 years, whether the annuitants is living.
While tax is deferred on earnings growth, when withdrawals are taken from the annuity, gains are taxed at ordinary income rates, and not capital gains rates.
If you withdraw your money early from an annuity, you may pay substantial surrender charges to the insurance company, as well as tax penalties.
The insurance company also agrees that the periodic payments will be a specified amount per dollar in your account.
These periodic payments may last for a definite period, such as 20 years, or an indefinite period, such as your lifetime or the lifetime of you and your spouse.
They can however, be a very useful tool in saving for retirement and accomplishing savings goals.