What is an Annuity?

Individuals hold about $2.2 trillion in annuity contracts; a tidy sum considering an estimated $9.2 trillion is held in all types of IRAs.

 

Annuity contracts are purchased from an insurance company. In exchange, the insurance company makes regular payments to the buyer — either immediately or at some future date. These payments can be made monthly, quarterly, annually, or as a single lump sum. Annuity contract holders can opt to receive payments for the rest of their lives or a set number of years.

 

The money invested in an annuity grows, tax deferred. When the money is withdrawn, the amount contributed to the annuity will not be taxed, but earnings will be taxed as regular income. There is no contribution limit for an annuity.

 

There are two main types of annuities. Fixed annuities offer a guaranteed payout, usually a set dollar amount or a set percentage of the assets in the annuity. Variable annuities offer the possibility to allocate premiums between various subaccounts. This gives annuity owners the ability to participate in the potentially higher returns these subaccounts have to offer. It also means that the annuity account may fluctuate in value.

 

Indexed annuities are specialized variable annuities. During the accumulation period, the rate of return is based on an index. Annuities have contract limitations, fees, and charges, including account and administrative fees, underlying investment management fees, mortality and expense fees, and charges for optional benefits. Most annuities have surrender fees that are usually highest if you take out the money in the initial years of the annuity contact. Withdrawals and income payments are taxed as ordinary income. If a withdrawal is made prior to age 59½, a 10% federal income tax penalty may apply (unless an exception applies). The guarantees of an annuity contract depend on the issuing company’s claims-paying ability. Annuities are not guaranteed by the FDIC or any other government agency.

 

Variable annuities are sold by prospectus, which contains detailed information about investment objectives and risks as well as charges and expenses. You are encouraged to read the prospectus carefully before you invest or send money to buy a variable annuity contract. The prospectus is available from the insurance company or your financial professional. Variable annuity subaccounts will fluctuate in value based on market conditions and may be worth more or less than the original amount invested when the annuity expires.

 

Case Study: Robert’s Fixed Annuity. Robert is a 52-year-old business owner. He uses $100,000 to purchase a deferred fixed annuity contract with a 4% guaranteed return.

 

Over the next 15 years, the contract will accumulate, tax deferred. By the time Robert is ready to retire, the contract should be worth just over $180,000.

 

At that point, the contract will begin making annual payments of $13,250. Only $7,358 of each payment will be taxable; the rest will be considered a return of principal.

 

These payments will last the rest of Robert’s life. Assuming he lives to age 85, he’ll eventually receive over $265,000 in payments.

Office Locations

Louisville

2201 High Wickham Place
Louisville, KY 40245
502.753.0609

Cincinnati

100 E-Business Way
Suite 110
Cincinnati, OH 45241
513.842.1700

Bowling Green

1048 Ashley Street
Suite 301
Bowling Green, KY 42103
270.843.4115

Indianapolis

5750 Castle Creek Parkway North Drive
Suite 170
Indianapolis, IN 46250
877.634.9757

Grand Rapids

607 Cascade West Parkway
Grand Rapids, MI 49546
844.476.2744

Elizabethtown

2901 Ring Rd

Elizabethtown, KY 42701
SCA 270.769.6371

270.990.9000

Paducah

4730 Village Square Drive
Suite 100
Paducah, KY 42001
270.443.8711

Bardstown

713 McDowell Blvd
Bardstown, KY 40004
502.348.1433

Atlanta

3625 Cumberland Blvd., Suite 1485
Atlanta, GA 30339
678.681.9518

All information herein has been prepared solely for informational purposes, and it is not an offer to buy or sell, or a solicitation of an offer to buy or sell any security or instrument or to participate in any particular trading strategy. Portions of the content on this website were prepared by Marketing Library Inc.

Please note: When you link to any of the websites provided herewith, you are leaving this site. We make no representations as to the completeness or accuracy of the information provided at these sites. Nor is the company liable for any direct or indirect technical or system issues or any consequences arising out of your access to or use of third party technology, sites, information and programs made available through this site. By clicking on links above you will leave our website and assume total responsibility and risk for your use of the site you are linking to.

Respective services provided by ARGI Investment Services, LLC, a Registered Investment Adviser, ARGI CPAs and Advisors, PLLC, ARGI Business Services, LLC, and Advisor Insurance Solutions. All are affiliates of ARGI Financial Group. View our privacy policy here.

Argi Gateway Login

Forgot your password?

Call 866-568-9719