Features of Annuities Business and Personal

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  1. Immediate & Deferred -
    Payments made to annuitant immediately or after at least one year.
  2. Fixed & Variable Annuities -
    Fixed payments/fixed interest rates; Varying rates of interest and payments may be fixed or vary. Variable is beneficial to help keep pace with inflation.
  3. Accumulation Period & Annuity Period -
    Period of time in which an annuitant makes payments; annuity period is also known as the annuitization period in which withdrawals are made.
  4. General Account vs. Separate Account -
    General account investing is typically safe and conservative, while Variable products invest in a separate account and accumulate at varying rates of return due to their placement in higher risk areas.
  5. Qualified vs. Non-Qualified -
    In a Qualified plan, contributions are tax deductible and taxes are deferred until withdrawn. In a @on-Qualified Plan, contributions are @OT tax deductible, but funds increased during the accumulation period are not taxed until withdrawn, either.
  6. Group vs. Individual Annuities -
    Group is purchased by an employer and Individual by one person
  7. Equity Indexed Annuity -
    More risk but also more potential return than a Fixed but less than a Variable. EIA’s are in between a Fixed and a Variable Annuity.
  8. Market Value Adjusted Annuities -
    Company agrees to pay a fixed rate of return for a specific time period. However, the value of the Annuity at the time of withdraw is adjusted by current interest rate if surrendered early. The client shares in the risk of changing interest rates. (Bought at 7%, sold at 9% = penalty. But sale at 5% = bonus)
  9. Tax-Sheltered Annuities (403b) -
    Developed by Congress to help non-profits contribute to an Annuity. Funds put here are excluded from employee’s current taxable income rate but are taxed when withdrawn. Also known as a TDA, Tax-Deferred Annuity or TSA, Tax-Sheltered Annuity.
  10. Individual Retirement Annuities (IRA) -
    Pre-Tax Contributions of up to $5000 per person if in a separate account for 2008. Taxable only when paid out.
    Beneficiary is allowed to attend a program of higher education. Contributions are not tax deductible, but withdrawals are not taxable either.
  12. SEP IRA – (Simplified Employee Pension)
    each employee has an account and employer (self-employed) contributes no more than 25% of salary or $46,000 for 2008.
  13. SIMPLE IRA – (Savings Incentive Match Plan for Employees)
    must have no more than 100 employees who earned $5000 or more in compensation during the previous year. In 2008, employees can make a catch-up contribution of $2500.
  14. ROTH IRA –
    Contributions are not tax deductible, but withdrawals are not taxable either. To contribute, singles must earn less than $110,000 and married couples $160,000 and withdrawals cannot be made for at least 5 years. You CA@ contribute to it past age 70 and do @OT have to withdraw by age 70.
Card Set
Features of Annuities Business and Personal
Exercise 4
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