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Funding an Annuity: What Are the Options?

June 8, 2011

John Jastremski Presents:

 

Funding an Annuity: What Are the Options?

 

At the simplest level, annuities are funded when you make payments (premiums) now in order to receive payments (return of premiums and any earnings) later. However, annuity payments made prior to age 59½ may be subject to a 10% federal tax penalty unless an exception applies. Some annuities are funded with one payment (single premium annuities), and some are funded over time (flexible premium annuities).

There are also some annuities that are not funded with cash at all. These are charitable gift annuities, and they’re often funded with appreciated assets to gain special tax benefits.
Single premium annuity

As you might expect, with a single premium annuity, you (the purchaser) pay one premium. If it is a deferred annuity, payouts begin at a later date, perhaps years in the future. A single premium immediate annuity (immediate annuities are only funded with a single payment) usually requiresa distribution starting date that is within one year of the annuity contribution.

The single premium annuity is also used in other situations. When a defined benefit pension plan is terminated, the accrued benefits under the plan are determined for each plan participant, and a single premium annuity may be purchased for each plan participant (with benefits usually starting at age 65).

Another common use is in the structured settlement of lawsuits. In these cases, the parties agree to pay a sum of money not as a lump sum, but as a series of payments (often for the life of an injured party). A monthly amount to be paid is agreed to by the parties, and an annuity is purchased that provides that amount.
Periodic annuity funding

Although deferred annuities can be funded with a single premium, mostly they are funded over a period of time. Periodic payments can be made until the annuity payout period begins. Annuities that utilize periodic funding can be divided into two categories:

  • Level premium funding: Premium payments are made on a regular, ongoing basis. Payments can be made either monthly or annually, depending on the terms of the contract.
  • Flexible premium funding: Premium payments are flexible and can occasionally be skipped. The insurer may impose an annual minimum and maximum on the amount of premiums that can be paid in.

Charitable annuities

Individuals who plan to give away substantial assets at death to qualified charities have a special funding option available that may help lower their current taxes, as well as provide a guaranteed income stream for life. (Guarantees are subject to the claims-paying ability of the issuing insurance company.)

With a charitable remainder annuity trust, an individual (the donor) makes an irrevocable transfer of assets to a trust whose beneficiary is a qualified charity. The trust pays a fixed amount to the income beneficiary, who may be the donor or someone the donor chooses, based on the value of the assets and the age of the income beneficiary. At the income beneficiary’s death, the trust assets go to the charity.

The donor can take a current tax deduction for a percentage of the amount gifted, based on the present value of the charity’s right to receive assets at the income beneficiary’s death.

This material was prepared by Peter Montoya Inc, and does not necessarily represent the views of John Jastremski, Jeremy Keating, Erik J Larsen, Frank Esposito, Patrick Ray, Robert Welsch, Michael Reese, Brent Wolf, Andy Starostecki and The Retirement Group or FSC Financial Corp. This information should not be construed as investment advice. Neither the named Representatives nor Broker/Dealer gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information or call 800-900-5867.

The Retirement Group is not affiliated with nor endorsed by fidelity.com, netbenefits.fidelity.com, hewitt.com, resources.hewitt.com,  access.att.com, ING Retirement, AT&T, Qwest, Chevron, Hughes, Northrop Grumman, Raytheon, ExxonMobil, Glaxosmithkline, Merck, Pfizer, Verizon, Bank of America, Alcatel-Lucent or by your employer. We are an independent financial advisory group that specializes in transition planning and lump sum distribution. Please call our office at 800-900-5867 if you have additional questions or need help in the retirement planning process.

John Jastremski is a Representative with FSC Securities and may be reached at http://www.theretirementgroup.com.

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The Retirement Group is not affiliated with nor endorsed by fidelity.com, netbenefits.fidelity.com, hewitt.com, resources.hewitt.com,  access.att.com, ING Retirement, AT&T, Qwest, Chevron, Hughes, Northrop Grumman, Raytheon, ExxonMobil, Glaxosmithkline, Merck, Pfizer, Verizon, Bank of America, Alcatel-Lucent or by your employer. We are an independent financial advisory group that specializes in transition planning and lump sum distribution. Please call our office at 800-900-5867 if you have additional questions or need help in the retirement planning process.

John Jastremski is a Representative with FSC Securities and may be reached at http://www.theretirementgroup.com.

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  • If you have a car loan, make sure that your insurance company has notified the lienholder. If your vehicle is declared a total loss, it’s likely that the insurance company will issue a check to the lienholder, not to you.
  • Some states have laws requiring that individuals involved in an accident resulting in injury or property damage report it to the Department of Motor Vehicles (DMV). Check with the police, the DMV, or your insurance company to find out if your state or the state in which the accident occurred has such a requirement.

This material was prepared by Broadridge Investor Communication Solutions, Inc., and does not necessarily represent the views of John Jastremski, Jeremy Keating, Erik J Larsen, Frank Esposito, Patrick Ray, Robert Welsch, Michael Reese, Brent Wolf, Andy Starostecki and The Retirement Group or FSC Financial Corp. This information should not be construed as investment advice. Neither the named Representatives nor Broker/Dealer gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information or call 800-900-5867.

The Retirement Group is not affiliated with nor endorsed by fidelity.com, netbenefits.fidelity.com, hewitt.com, resources.hewitt.com,  access.att.com, ING Retirement, AT&T, Qwest, Chevron, Hughes, Northrop Grumman, Raytheon, ExxonMobil, Glaxosmithkline, Merck, Pfizer, Verizon, Bank of America, Alcatel-Lucent or by your employer. We are an independent financial advisory group that specializes in transition planning and lump sum distribution. Please call our office at 800-900-5867 if you have additional questions or need help in the retirement planning process.

John Jastremski is a Representative with FSC Securities and may be reached at http://www.theretirementgroup.com.

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