Annuities are long term, tax-deferred investments vehicles designed for retirement purposes.
An annuity is a contract between you and an insurance company. Annuities typically offer tax-deferred growth of earnings and may include a death benefit that will pay your beneficiary a guaranteed minimum amount, such as your total purchase payments. Multiple types of annuities are available, including fixed and variable annuities.
Gains from tax deferred investments are taxable as ordinary income upon withdrawal. Guarantees are based on the claims paying ability of the issuing company.
Fixed annuities are a conservative way to accumulate retirement assets and give you an opportunity to generate income for life. They can allow you to:
- Grow your retirement dollars tax-deferred
- Potentially earn a higher rate than CD and savings accounts
Important considerations for fixed annuities:
- Most fixed annuities come with surrender penalties to discourage early withdrawal.
- Withdrawals prior to age 59 ½ may be subject to a 10% federal tax penalty.
- Beneficiary(ies) owe income taxes on any gain in the contract at death of the owner when the money is distributed; beneficiaries may elect to pay these taxes over a period of time if they select a payment option instead of a lump sum distribution.
If you are comfortable with market fluctuations, including the potential loss of principal, variable annuities offer you the advantages and earnings potential of the equity and debt markets. Investment choices generally include a variety of professionally managed sub-account options, ranging from conservative (including optional guaranteed accounts) to aggressive, investing in bond and/or stock portfolios. The investment returns and principal value of the available sub-account portfolios will fluctuate so that the value of an investor's unit, when redeemed, may be worth more or less than their original value.
Variable annuities can be purchased through a single premium payment or through a flexible series of payments made to insurance companies under contractual agreements. Under the agreements, insurance companies agree to pay out income or lump sum amounts at a later date. There are a variety of income options available at maturity, including a guaranteed lifetime income option.
Riders are additional guarantee options that are available to an annuity or life insurance contract holder. While some riders are part of an existing contract, many other may carry additional fees, charges, and restrictions, and the policy holder should review their contract carefully before purchasing.
Choose a variable annuity if you want the ability to:
- Grow your retirement dollars tax-deferred
- Receive a variety of income options at maturity
- Receive death benefit guarantees protecting your investment for your beneficiary(ies)
- Have the flexibility to transfer your money from one investment option to another within a variable annuity without paying tax at the time of the transfer. (When you take your money out of a variable annuity, however, you will be taxed on the earnings at ordinary income tax rates rather than lower capital gains rates.)
Important considerations for variable annuities:
- When you take your money out of a variable annuity, you will be taxed on the earnings at ordinary income tax rates rather than lower capital gains rates. In general, the benefits of tax deferral will outweigh the costs of a variable annuity only if you hold it as a long term investment to meet retirement and other long-range goals.
- The possibility exists that account values could decrease during down markets.
- Most variable annuities come with surrender penalties to discourage early withdrawal.
- Withdrawals from annuities prior to age 59½ may be subject to a 10% federal tax penalty.
- Mortality and Expense fees are typically between 0.75% and 2%.
Variable annuities are sold by prospectus. Please consider the investment objectives, risks, charges, and expenses carefully before investing. The prospectus, which contains this and other information, can be obtained by calling your Middleburg Investment Group advisor . Read the prospectus carefully before you invest. Variable annuities are long-term investments suitable for retirement funding and are subject to market fluctuations and investment risk.
There are contract limitations, fees and charges associated with variable annuities, which include, but are not limited to, mortality and expense risk charges, sales and surrender charges, administrative fees and charges for optional benefits. Please talk with your Middleburg Investment Group advisor for cost and complete details of coverage.
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