Immediate Payment Annuity : Getting Paid For Saving MoneyAn annuity is your contract with the insurer to take your investment and repay it to you over a set period of time. Annuities can be started with a lump sum as currently being done by the rapid influx of baby boomers into the ranks of the retired. Or, it can be built up over the years with monthly or annual payments so that when the goal is reached the annuitant can then start to take the money out on a scheduled basis. The immediate payment annuity is started with a lump sum payment. The three types of ways to purchase one are: 1. The lump sum payment derived from a retirement plan distribution, an award from an insurance claim for personal injury, a divorce settlement, or if you should only be so lucky, from a winning lottery ticket. 2. Annuitization of IRA, Roth IRA, or 401(k) , 403(b) or 457 accounts. In some cases there will be advantages from the IRS is the annuitant is under 59 1/2. 3. Some retirement plans offer the retiree an annuity in lieu of the retirement plan. The company is released of it's liability to the retiree and the retiree is guaranteed a monthly income for life. There can be some tax advantages to this. Of all the tips involved in annuity shopping is remember that you do have options. Your turnover of a tax-deferred annuity to a immediate payment annuity is not limited to your insurance company. You can shop for the best value for your money. When you find the best offer complete a tax-free (Section 1035) transfer to the new company. If your retirement plan offers only one insurance company for their annuity you can once again shop for the best offer and transfer your money to them. Start to shop for your immediate payment annuity before you need it. You will find countless brokers representing still more insurance companies that want your business. The more companies you get quotes from, the more knowledgeable you will be in making your purchase. Do no limit your comparison to just the annuity market. Compare each of their annual return on investment to that currently being offered by Certificates of deposit, bonds, or money market accounts. Do not forget to factor in the tax advantages of an immediate payment annuity. A non-qualified immediate annuity's return to you is divided into two categories, interest and principal. The interest is taxable as ordinary income but the principal is non taxable as the IRS considers that you have already paid the taxes on it. Check with you account before making a decision based on tax advantages. |