You can use annuities to save for things like retirement and your kid’s college education, as well as other things that are further out in the future. This financial guide explains how annuities function, describes the many kinds of annuities, and assists you in selecting the appropriate annuity product (if any) for your needs. Once you know what kind of annuity you’ll need, it walks you through the steps of shopping for an insurance provider and an annuity and the tax implications of both. Discuss your case with an experienced tax relief in Lake Mary, Florida specialist.
When compared to traditional life insurance, which protects against “dying too soon,” an annuity can be thought of as protection against “living too long.” In a nutshell, an annuity is a series of guaranteed payments made at regular intervals in exchange for an upfront lump sum (typically from an insurance company that invests your money). The annuity payments, if taken over a lifetime (though there are other options), provide a steady “income” right up until the time of your death. Your insurance payout will be significantly reduced if you “die too soon” (i.e., if you don’t live longer than your expected lifespan). However, if you “live too long” (and actually do outlive your life expectancy), you could receive a return that is significantly higher than the amount you initially invested in the annuity. On the other hand, if you put your money in a conventional investment, it could dry up before you die.
All growth in the value of the annuity that occurs during the annuity’s term is exempt from taxation. Until you actually receive the money, you won’t have to pay taxes on them. Your money has a better chance of growing in value than it would in a taxable investment due to the tax deferral.
The Best Uses for Annuities for Saver’s Money.
There are two main draws to annuities as a form of investment:
- For some reason, you’d like to put money aside for the future, and/or you’d like to have a steady flow of money coming in after tax for a set amount of time.
- One of an annuity’s strongest suits is as a source of money for retirement or, in some cases, for college.
The growth period of an annuity is a time when you cannot access your money without paying steep taxes and penalties.