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Annuity means the distribution of payments over a specified period of time. Depending on the policy, the annuity contract can involve a lump sum or recurring monthly payments. There are three people involved in this situation: the insurance company, the insured, and the beneficiary who will receive benefits if the owner of the policy dies.
What are withdrawal privileges?
Withdrawal privileges are usually associated with the deferred annuity type of contract, though some immediate annuity contracts may also involve them.
- Deferred annuity involves a contract in which the insured person can build up funds over a period of time (tax-deferred) and then get a choice of payout options.
- For the immediate annuity contract, the owner is paid a monthly income after buying the annuity contract for a lump sum. This contract can be extended for a period of time or until the end of the insured’s life.
The withdrawal privileges come into play during the accumulation or interest period of the policy. Traditionally, though by no means a rule, the insured can withdraw 10% of accumulated value on the policy for 12 months. That is your money and you are entitled to a portion of it at present time.
Many of these policies do come with risk of tax penalty. For example, if you withdraw interest before the age of 59 and a half, you can incur tax penalty. You might also have to pay early withdrawal charges if the amount you take out is greater than the allowed amount on the policy.
How does variable annuity relate to payments?
Deferred annuity involves variable annuity. This long-term program offers investors the opportunity to increase their balance through compounding interest and tax deferral. Depending on the policy, you may make a lump sum payment or a series of payments over many years. Variable annuity depends on the investment options you choose along with your policy.
The benefits of this type of contract include that:
- You can earn interest on your earnings.
- No income tax is required on the earnings until you start withdrawing. Therefore, this allows the interest in your account to accumulate at a faster rate.
- The ability to take out part of your balance before the insurance company starts making payments.
When done according to contract, the insured will not be forced to pay any surrender fees. Furthermore, in some contracts many 1035 exchanges and IRA transfers qualify for free withdrawal privileges if they are recorded within the first year.
How can annuity withdrawal options help me?
The question is why should you look for a policy with annuity withdrawal privileges? Many insurers offer what are called guaranteed minimum withdrawal benefits. These are riders included in the contract that guarantee the insured will get back nothing less than whatever he or she put into the policy, if and when that amount is withdrawn.
The advantage here is that this benefit allows insureds to withdraw money each year and 10% of accumulated value is a substantial amount. The less that is withdrawn, the more the amount of interest increases. You can use this money for your own personal or business expenses or you can sit back and watch your savings grow.
Of course, beyond the withdrawal benefits, insureds also benefit from the annuity policy itself. They can create dependable income over a period of time for their own benefit. Not only does this provide stability later in life, but such a policy can also help to avoid dangerous market fluctuations. You can protect your income and enjoy a guaranteed income for life. This is a low risk and stable retirement solution for many investors.
Why not get started shopping for such a policy right now? Whether you are up in years or still young, you can benefit from an annuity policy. Enter your zip code and get annuity quotes today!