Annuities are accessible. Because there are no contribution limits, people can invest as much or as little as they chose in annuities no matter what their income levels. And this money grows on a tax-deferred basis until accumulated earnings are distributed, usually at retirement.

Moreover, unlike other tax-deferred investments during distribution phase, annuities’ tax-deferred earnings are not counted in determining a person’s income taxes on Social Security benefits. At same time, while annuitants cannot outlive their guaranteed benefits, properly structured annuity contracts and beneficiary designations can: 1) avoid probate,

2) protect assets held in trust from mismanagement by a parent of guardians, and

3) continue benefits to annuitant’s heirs, thus making annuities effective multigenerational planning vehicles.

Market Overview

With their unique advantages, a growing market for annuities has grown among individuals with longer-term wealth accumulation and retirement planning needs, as well as individuals with immediate income needs. Let's consider how two types of annuities can be used to address wealth accumulation and retirement planning problems we all face. These are:

• Non-qualified Annuities • Qualified Annuities

Non-Qualified Annuities -- Non-qualified annuities are purchased with after-tax dollars to meet longer-term wealth accumulation or retirement planning needs--with emphasis on longer-term.

As noted, deferred annuities may not be appropriate for shorter-term wealth accumulation purposes — generally those that will materialize before age 59½; while immediate annuities are designed to provide long-term income — that is, income guaranteed for life.

Non-qualified annuities are used to fund cash accumulation programs that do not qualify for a front-end tax deduction; but whether an annuity is qualified or non-qualified, premiums always accumulate interest that is free of current income tax until withdrawn. But non-qualified annuities also allow owners to continue tax deferral beyond age 70, mandatory withdrawal age for traditional IRA's and qualified retirement plans.

Qualified Annuities-- Annuities can also accommodate tax-qualified money. A qualified annuity is used to fund a tax-qualified retirement plan such as a traditional IRA or an HR-10. Thus in most cases, premiums paid to qualified annuities are tax-deductible. For instance, when people change jobs and have 401(k) funds to move or already have IRAs and are seeking a more diversified portfolio. They can reduce their portfolio exposure by rolling money over into an annuity without losing tax advantages.

Or suppose Alice inherits $20,000. If she doesn’t need money right away and wants to build a long-term nest egg, she might consider putting inheritance into an annuity. By doing so, she’ll gain advantage of tax-deferral, and when it’s time to withdraw funds from her non-qualified annuity, Alice will only be taxed on accumulated interest, not principal.

Generally, annuities are not suitable estate planning vehicles, but are useful in meeting immediate and retirement income needs. Thus, iif you’re a candidate for wealth accumulation and retirement planning, remember: "The only person who can take care of older person we will someday be is younger person we are now."

Want More? Send questions and comments to w.willard3@knology.net