Advantages and Disadvantages of Deferred Annuities

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<h1>Advantages and Disadvantages of Deferred Annuities</h1><strong> Author: <a href='http://www.articleseen.com/profile_Simon Cronje.aspx'>Simon Cronje</a></strong><br /><p>Deferred Annuities Deferred annuities are a great long-term investment. They allow an investor to contribute their money without paying taxes until money is withdrawn. Your money grows tax-free. Once you decide to begin receiving payments, you will pay taxes on your profits at your normal income tax rate. Tax deferment may be the biggest reason you like annuities. It is very important to ensure that expenses do not outpace your tax benefits. A deferred annuity may not be your best choice if expense charges are 1.5% greater than a comparable investment, and your investment time is less than ten years. Check with your tax accountant if you have questions. If you have a need to pay current expenses, a deferred annuity can present difficulties. Withdrawing money before age 59 ½ will result in a 10% tax penalty. Your insurance company may impose a surrender fee if you withdraw your money in the first several years after purchase. It could be as high as 7% of your investment. Most insurance companies usually eliminate the surrender fee once you have owned your annuity for more than ten years. Some companies allow you to avoid the surrender fee by withdrawing less than 10% of your annuity balance each year. Be aware that tax penalties may still apply. According to the IRS, all withdrawals are viewed as taxable income until all of the funds are withdrawn from the annuity. Switching annuities may trigger a penalty on your current annuity. If you are advised to switch your annuity, check for yourself to see if the benefits of the new annuity outweigh the penalties you will pay. Make sure your salesperson is not motivated by a fat commission check. If you still want to switch, ask your salesperson for the applicable company forms to make a 1035 exchange. Section 1035 of Internal Revenue tax code allows a tax-fee exchange. Using this option can save you a lot of money. Withdrawing Funds from a Deferred Annuity Many payout options are available to you once you decide to start receiving funds from your annuity. You can cash out your entire annuity into one lump sum payment. If you don’t like that option, consider withdrawing money when you need it or choose a steady monthly amount, called annuitizing. Annuitizing guarantees you a steady stream of income for the rest of your life, no matter when your death occurs. The biggest advantage to receiving a specified amount of money each month is that taxes are due only upon the money you withdraw. Instead of paying Uncle Sam immediately, your tax liability is spread out over months and years. You pay taxes for the earnings as you withdraw them, which can help keep you in a lower tax bracket. If you prefer, the insurance company can deposit your money into your bank account periodically. Speak with your tax advisor or financial planner for more details.</p><strong>About the Author:</strong><br />Simon Cronje is a business consultant who has good information on <a rel="nofollow" href="http://www.totalreturnannuities.com/">annuity</a> and <a rel="nofollow" href="http://www.totalreturnannuities.com/">Deferred Annuity</a>. For more information visit <a rel="nofollow" href="http://www.totalreturnannuities.com/">http://www.totalreturnannuities.com/</a>.<p> Article Source: <a href='http://www.articleseen.com/Article_Advantages-and-Disadvantages-of-Deferred-Annuities_41788.aspx'> http://www.articleseen.com/Article_Advantages and Disadvantages of Deferred Annuities_41788.aspx</a></p>

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Category : Finance : Finance