There are different options when an annuity reaches its maturity date, but how that plays out has a lot to do with how the annuity was set up when it was started. Annuities are contracts between you and the insurance company, where the details — often including maturity options — are spelled out ahead of time. The process of maturity with an annuity is unlike that of more traditional investments like certificates of deposit. That process is largely determined by the terms of the annuity contract.
Free Annuity Guide reveals how to grow a lifetime retirement income. Since an annuity works much like an IRA, it allows for tax deferral of investment income which becomes taxable when distributed. Depending upon the contract, this can allow you to receive a guaranteed income for a specific period of time, or even for the rest of your life.
You can direct the annuity to provide you with either fixed level payments, or with variable payments depending upon the performance of the underlying investments. You can also set up an immediate annuity with a deferred annuity which we will discuss below. This is done by converting the deferred annuity to an immediate annuity upon maturity. A deferred annuity works much like an IRA. You fund it over a number of years — which is out in the annuity contract — and then begin taking income at the end of the term.
You can have the annuity then pay you an income under whatever terms are spelled in the contract. It can be an annual distribution, semiannual, quarterly, or monthly. This is probably the most interesting annuity of all, and the most complicated as far as maturity options are concerned. The basic purpose of the longevity annuity is to prevent the annuity owner from outliving their money.
Like all annuities, longevity annuities can be set up with various provisions. However, you typically must wait until you reach the age of 80 before receiving income distributions from the contract. At that What Are Your Options When An Annuity Matures, the insurance company will begin making income payments to literally last for the rest of your life, virtually eliminating the possibility that you might outlive your money. This delay in the payment of income is also why the insurance company is able to guarantee you that income.
And I mean the winner! Should you die before you begin receiving income payments, the insurance company will keep your investment in the annuity.
No, the money remaining in the contract will not be paid out to your heirs and beneficiaries. A longevity annuity is something like a bet between you and the insurance company. To summarize the distribution options, when an annuity matures — or annuitizes — you will generally begin taking income payments as of a predetermined date that is spelled out in the annuity contract.
The receipt of income payments can be monthly, quarterly, semi-annual, annual, or whatever you agree to with the insurance company. There are also tax implications connected to annuity income payments.
Much like a Roth IRAthere is no tax levied on the portion of your annuity income payments that represents your contributions to the annuity contract. That is because the contributions were not tax deductible when they were made. However, unlike a Roth IRA, the earnings that have accumulated on your annuity will be taxable as ordinary income What Are Your Options When An Annuity Matures the year received as income.
But annuities have other gotcha provisions, as well as some pretty stiff fees. Annuities that are invested in the insurance company equivalent of mutual funds can be especially problematic. The problem is they typically do not include dividend distributions in your return. They may also have caps on the amount of capital gains income that you can have in any given year. Once again, it is very important understand that annuities are contracts, and contain very specific provisions that will govern what your rate of return will be.
Fees on annuities, and especially those invested in funds, are almost universally higher than what What Are Your Options When An Annuity Matures found elsewhere in the investment world.
For example, an insurance company may charge an annual commission on your holdings in a fund type investment. They may also impose a surrender charge, and it can be as high as 20 percent on equity indexed annuities. Unlike many mutual funds that also impose back-end load fees, surrender charges on annuities can be in effect for many years. Annuities can be great investments to either supplement your retirement income, or to provide yourself with a guaranteed income flow. Your email address will not be published.
Tom is a former accountant turned entrepreneur. He is not a financial adviser but does tend to give a lot of financial advice to his friends and colleagues. He currently runs a small online venture and blogs about his research and experiences.
Free Annuity Guide reveals how to grow a lifetime retirement income Since an annuity works much like an IRA, it allows for tax deferral of investment income which becomes taxable when distributed. Here are the more common arrangements and options in regard to maturity distribution methods. Longevity Annuity This is probably the most interesting annuity of all, and the most complicated as far as maturity options are concerned.
Annuity Distribution Options To summarize the distribution options, when an annuity matures — or annuitizes — you will generally begin taking income payments as of a predetermined date that is spelled out in the annuity contract. Free Annuity Guide reveals how to grow a lifetime retirement income The problem is they typically do not include dividend distributions in your return.
Conclusion Annuities can be great investments to either supplement your retirement income, or to provide yourself with a guaranteed income flow. Leave a Reply Cancel reply Your What Are Your Options When An Annuity Matures address will not be published. About Author Tom Smallwood Tom is a former accountant turned entrepreneur.