Investments
Annuity
An annuity is a conservative financial product designed to help clients accumulate money for their retirement and/or turn a lump sum of money into a guaranteed stream of income for life.
Annuity Uses:
- Annuities are generally purchased by individuals. However, they may be used for a corporate pension plan. The annuity consists of a Group Deferred Annuity with each employee receiving a certificate.
- Annuities may be used as a taxable (unqualified) savings plan or as a nontaxable (qualified) retirement plan. When used as a savings vehicle, contributions are unlimited. If used as a retirement plan (TSA, IRA), the contributions are limited by the IRS.
- Corporations may use annuities to fund pensions for employees, funding nonqualified deferred compensations plans or qualified retirement plans, and even to structure payments of liability settlements.
- Corporations may not use annuities to invest in profits and defer taxes as the assets grow for the benefit of the corporation
Annuity Concept:
Accumulations (Pay-In) Period
The period of time from the first deposit based on the selection of a settlement option is considered the accumulation period, in which taxes are deferred
Payment Options include:
- Single Premium - a lump sum (rather large single deposit) put into an annuity account
- Level Premium - set contributions are made on consistent basis
- Flexible Premium - flexible contributions
may be made in whatever amount and as often as the owner
desires, however, most annuities have a minimum.
Annuity (Pay-Out/Liquidation) Period
This pay-out period starts at the receipt of the first periodic payment, and continues on a regular basis.
Payment Benefit Options include:
- Temporary Annuity - payments received for a specific period of time, or until death of owner; whichever occurs first.
- Life Income - payments received for as long as the owner lives, all payments cease upon death
- Life Income Period Certain - payments received for life, or for a specific period, whichever occurs last. If owner lives beyond period agreement, benefits will continue for life.
- Life Income w/ Refund - payments received for life. Upon death, if owner has not received an amount equal to the total of all payments made into the annuity, the balance is refunded to the beneficiary either lump sum or installments.
- Fixed Amount - payments in the amount stated by the owner for as long as the principal and interest will pay set or level benefit.
- Life Income Joint & Survivor - payments are made to 2 or more owners while both are living. Upon death of the first owner, survivor benefits continue, normally reduced to 2/3 or 1/2 for the survivor's income until survivor dies.
- Joint Life - payments are made to 2 or more owners while both are living. Payments stop upon death of the first owner.
Annuity (Immediate vs. Deferred):
- Single Premium Immediate Annuity (SPIA) - a single premium (lump sum) is put into an account from which the owner may immediately begin receiving benefits(within a one year period annuity is issued). A retirement plan buy out, or the death proceeds of a life policy might be used to fund a SPIA.
- Single Premium Deferred Annuity (SPDA) - a single premium (lump sum) is put into an account from which the annuitant will draw the periodic benefits at some specific time in the future; which begin a year after issue date. Ideal for educational funding.
- Flexible Premium Deferred Annuity (FPDA) - flexible premium contributions may be made in whatever amount and as often, however, most annuities require a minimum. Benefits begin more than one year after annuity issue date. Deferred annuities are normally purchased to defer taxes on growth and accumulation, such as retirement funding.
Annuity Types
- Fixed - payments of benefits is at a level amount, and the declared interest during the accumulation (pay in) period is a fixed guaranteed rate.
- Equity-Indexed - An annuity product with renewal interest rates that are linked to a stock market related equity index, such as the S&P 500 Index.
- Variable - annuity payments fluctuate according to the investment experience of the separate account(s) the owner has selected as investment choices. Payments are made in terms of units. The owner bears the investment risk and receives the return actually earned on invested assets, less any expense charges.
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IRA
Individual Retirement Account. A tax-deferred retirement account for an individual that permits individuals to set aside money each year, with earning tax-deferred un
til withdrawals begin at age 59 1/2 or later (or earlier, with a 10% penalty). The exact amount depends on the year and your age. IRAs can be established at a bank,
mutual fund, or
brokerage. Only those who do not participate in a
pension plan at
work or who do participate and meet certain
income
guidelines can make
deductible
contributions to an
IRA. All others can make contributions to an IRA on a
non-deductible basis. Such contributions qualify as a
deduction against income earned in that year
and interest accumulates tax-deferred until the
funds are withdrawn. A participant is
able to
roll over a
distribution to another IRA or
withdraw funds using a special
schedule of early
payments made over the participants
life expectancy.
Roth IRA
A new type of IRA, established in the Taxpayer Relief Act of 1997, which allows taxpayers, subject to certain income limits, to save for retirement while allowing the savings to grow tax-free. Taxes are paid on contributions, but withdrawals, subject to certain rules, are not taxed at all. Contributions to the Roth IRA are invested in mutual funds, stocks, or other securities, and the amount that someone is able to contribute is dependent upon their income, age, and tax filing status. Unique features of a Roth IRA are that it does not require you to start making withdrawals at a certain age, and also it allows an individual to make a qualified withdrawal up to $10,000 for a first time home purchase.
401(k) Plan
A defined contribution plan offered by a corporation to its employees, which allows employees to set aside tax-deferred income for retirement purposes, and in some cases employers will match their contribution dollar-for-dollar. Taking a distribution of the funds before a certain specified age will trigger a penalty tax. The name 401(k) comes from the IRS section describing the program.
Mutual Funds
A mutual fund is an investment company that pools the money of many individuals and institutions and invests it on their behalf. Mutual funds can invest in stocks, bonds, options, futures, currencies, money markets, or just about any other security that exists.
Buying shares in a mutual fund gives you partial ownership of a
professionally managed investment portfolio. This "basket" of assets
offers built-in diversification and allows you to leave the
day-to-day fund management to the professionals. You can choose to
allocate your investments among
a variety of investment options
which offer the asset mix that suits your investment objectives.
Mutual funds are appropriate for:
- Building a retirement.
- Additional income.
- Establishing an educational fund for children.
- Savings to buy a home or other major purchases.
- Transfer of assets to family members and heirs.
Common benefits include:
- Convenience - Most companies that offer mutual funds provide convenient client services that make investing easier, like periodic investment plans and dollar-cost averaging. In addition, online account access can help you track transactions and follow your funds’ performance.
- Diversification - When you buy a mutual fund, you are buying an interest in a portfolio of many different securities, giving you instant diversification within each selected investment category.
- Affordability - Mutual funds allow you to begin investing with amounts of money appropriate for your financial situation. In most cases, you can continue to invest in a mutual fund on a systematic basis.
- Multiple Investment Option - Typically, mutual fund investors have many different funds to choose among, for example, money market, fixed income, growth, balanced and international funds. This allows you to make asset allocations for your portfolio, based upon your financial situation, life stage, risk tolerance and time horizon.
- Professional Investment Management - Mutual funds utilize
dedicated professionals experienced in investment money
management. Many investors do not have the necessary time,
resources or expertise to make appropriate and timely investment
decisions on an ongoing basis.
- Variety of Pricing Options - Mutual funds offer a variety of pricing options and share classes to suite your financial needs, time horizon and investment objectives.
Disclaimer:
**The feature icons displayed are a summary for informational purposes only. Review the evidence of coverage and insurance policy (plan contract) for a detailed description of coverage benefits, limitations, and exclusions.**