Annuity has a large market as a retirement plan, but less well known than 401K or IRA. Many people are puzzled when talking about annuities. Here to talk about annuities, introduce its nature, characteristics, fees and so on.
one. What is annuity (Annuity)
Annuity is a retirement plan, the so-called retirement plan, the IRS (IRS) has a basic requirement is 59 years and a half ago generally can not take out (withdraw). 10% of today's early withdrawal, which applies to almost all retirement plans, including 401K, SEP IRA, IRA and Annuity.
The main benefit of annuity is the tax-deferral, that is, as long as it does not come out, there is no tax problem. Some people say that only the last tax or to pay taxes, there is no difference, so annoying annoyance. In fact, the power of deferred tax is a major manifestation of three points. First, now you have a job income, retirement does not work, most people's income will be reduced. Income is less, the tax rate also came down. Now pay 30% of the tax, after retirement may only pay 15% of the tax. Second, even if the tax rate is the same, you are willing to pay taxes now, or 20 years after the pay Of course, after 20 years to pay. Because of the inflation factor, 20 yuan after 20 years may only be equivalent to today's 5000. Third, because there is no need to pay taxes every year, you can profit, its end result will be better than the annual tax effect.
Annuity is a large container that can either put a non-qualified plan, that is, a postpayment money, or a qualified plan, such as IRA, SEP IRA, in annuity. Because it is a qualified plan, this annuity can also be tax deductible. There are people who retired, or for work, you can later 401K, 403B rollover to annuity. This kind of rollover or transfer is just another place that does not involve the advancement of the question, so there will be no tax problem, and no more fines.
two. The type of annuity
There are two kinds of annuities, there are three, namely variable annuity (fixed annuity), fixed annuity (fixed annuity) and index annuity (fixed index annuity). This third is popular in recent years.
First said the first variable annuity. Your money to invest in mutual funds, with the market fluctuations, ups and downs can be great. In 2000-2000, the relatively stable S & P 500 index fell by 50%, while the high-tech NASDAQ index rushed to 5000 in 2000. Since then all the way to diarrhea, in 2006 even half of the heyday, until this year only rose back. If you unfortunately put the retirement plan money on this high-risk index fund, it is miserable.
And fixed annuity (fixed annuity) do not dance with the market, the insurance company to give you a minimum interest, usually about 3%, high when there may be 4-5%, it is almost the end, and will not lose money, interest may be just Make up for inflation. But it is impossible to get a higher return.
Jiangshan on behalf of talented people, the leading position for several years, the financial insurance market is also the case, in recent years there has been a new annuity that is the index annuity (fixed index annuity). Insurance companies take your money to invest, how to invest with you no relationship, but your return is followed by several major indices, such as Dow Jones, S & P500 or NASDAQ100 go. These indexes are up, and you are following up, but there will be a cap (upper limit), such as an annual cap of 12% or a monthly limit of 3%. The excess part of the insurance company, less than equal to the upper part of the part of you. But the insurance company guarantees that if the index falls, you do not lose money, value remains unchanged. If the variable annuity is a wave of ups and downs, the index annuity is like climbing stairs, a level up, up to the place, but will not fall. Index annuity because of the guarantee does not lose money, but also enjoy the stock market rose when the higher returns of the characteristics, and in the past few years popular. Some insurance companies to seize the market, returned to 3%, 5%, or even 10% of the one-time bonus (bonus), and thus more favored by customers.
Announcement of annuities
The annuity is the same as the life insurance of the insurance company, and the business is going to make money. The annuity is different depending on the type of annuity.
A) variable annuity (Variable Annuity), the above said variable annuity is invested in the mutual fund, value with the market ups and downs, earn less are you, lost is yours. Variable annuity is mainly two kinds of charges, one is a variety of mutual fund management fees, also known as Expense ratio. Each mutual fund needs someone to operate, need to rent office, advertising, pay staff salaries, bonus to the fund manager, and so on. These are the operating costs of the Fund, is inevitable. Mutual funds can not Load (sales), but there will be management fees, the difference lies in the size of the management fee. General index funds such as S & P500, not active management, management fees rarely, less than 1%. While aggressive management of aggressive funds, management fees are generally greater than 1%, and even 2%, 3%. This management fee is regardless of the stock market ups and downs must be received, and investors can not see from the statement, because it is directly deducted. For example, the A fund rose 8% this year, but in your statement only rose 6.5%; B fund fell 8% that year, your statement was down 9.5%, the more out 1.5% is the mutual fund management fee. Second, the variable fund also has its own unique mortality rate fee. We all know that the value of mutual funds with the market ups and downs, may rise may also fall. If it is a common mutual fund, such as 401K in the mutual funds, investors once died, the beneficiary to get the value of the day the investor died, the value is probably not the highest value. In the variable annuity, the beneficiary is the highest value of the past three years. The present value of death and the highest value of the past three years are generally different, and may be great. Look at the performance of the 2002 mutual fund in 2002. This loss is borne by the insurance company. The world is not eaten lunch, insurance companies to bear this risk, naturally to the charges, which is the so-called mortality risk fee, generally about 1.4%. Recently, some companies launched a guarantee of 6% per year, 7% of the product is also a variable annuity, in addition to the above list of mutual fund management fees, mortality risk fee, but also another 0.35% -0.5% Fee, because it ensures that your value will grow by 6%. (This guarantee is up 6%, 7% of the variable annuity trick in your money when the various restrictions, the next column column to elaborate.) As a result, its annual fee may be as high as 3.5%. In addition, if the cautious annuity balance is less than a certain value, such as $ 25,000, the insurance company will also receive additional administrative fees of $ 30, $ 50 a year, the general mutual fund will also receive.
B) fixed annuity (Fixed Annuity): This annuity insurance company does not charge any fees, there is no administrative fees. Insurance companies take your money to invest, the rate of return in general will be higher than its commitment to your interest (usually around 3%), so the insurance company does not charge. The principle is much like a time deposit (CD).
C) Index Annuity: In recent years, very popular index annuities generally do not charge any fees, neither Load nor sales fee, your return depends on your choice. The rate of return of a certain or several index funds. The index rose, you also rose, there is a cap (cap); index fell to ensure that your value unchanged. You can enjoy the stock market rose when you get the benefits of higher returns, but also to avoid the stock market fell when you lose, so the past few years is very popular. Someone asked, how did the insurance company make money? Insurance companies make money mainly in two aspects, one is how insurance companies and you do not matter, it can vote on the S & P500, you can also vote in other places, the return may be greater than the SQP500. For example, Alliant Life, which sold most of the stock index in the past few years, had a $ 2.5 billion joint venture with Goldman Sachs Investment last month to buy 10% of the shares of ICBC to break into the Chinese market, which is optimistic about the Chinese market and hopes to get long-term High return. The second is the stock index annuity of the CAP, the rate of return is less than equal to the CAP to you, more than part of the insurance company to cover its operating costs.
Four, annuities of the Surrender Period
The annuity is a retirement plan, 59 years before and after the half, generally can not be taken out, this is the IRS provisions, and all the annuities have a surrender period, which is the insurance company's own rules. During this Surrender period, you can not cancel the contract, take the money all the way or go to (transfer or rollover) to other companies to go. If the surrender period is under the period of time, the money is turned away, take out or cancel the contract, will face a fine of the insurance company. If you take all the money at least 59 years old, then there will be a fine IRS. There are 5 years, 7 years, 10 years, depending on which product you are buying.
The fees and fines for the various annuities described in this article can be found in the annals of the annuities, and if fixed annuities or stock index annuities are found in its brochures or brochures.
Fives. Annuity tax law
The greatest benefit of annuity is deferred tax, as long as you do not come out do not have to pay taxes. After 59 and a half years you can take out the money in the annuity, then you will have to pay your income tax. Depending on whether the annuity is a Qualified program or a non-qualified plan. If the Qualified program, such as 401K, IRA, SEP, etc., even with the profits are taxed. How much tax is paid depends on how much money you get from your annuity in the year, plus your other income, including income from social security, to determine your tax rate. If the money on the annuity is the tax after the money, then take out the value-added part of the tax, the principal does not need to pay taxes. It is LIFO (Last In, First Out), which is the terminology of accounting, that is, the interest generated after the first came out, and finally took out the calculation of the principal. For example, you put into the annuity 100,000, and finally into the 180,000, first take 80,000 out, which 80,000 as a value-added, first pay income tax, the remaining 10 million as this, do not have to pay later Tax, which is the opposite of life insurance. Life insurance using FIFO (Fist In, First Out), the cash value out when the first cost, more than the cost of incremental value.
six. Annuities of annuities
As with most retirement plans, the annuity can be made after 59 and a half years later. After 70 and a half years, it is necessary to take out the money, how much is the minimum requirement (RMD), 3.65% at the age of 70, and then increase year by year. 80 years old is 5.35%, 90 years old must be 8.77% of the Value out. Why should IRS hard to specify when you have to take out the money? Because the retirement plan has a tax function, if you do not take out the money, IRS to levy taxes.
Annuity of the variety of ways to mention, you can take all the one-time, you can also divided into 10 years, 20 years or Life time to get the money in the annuity, take the section of the annuity you buy the rules, If you choose Lifetime Income (Life Time income) extraction method, the insurance company is based on people's life expectancy, and then according to your age, calculate how much money a year to pay you. The insurance company guarantees that you will give the same amount of money each year in your lifetime. If you survived the average life expectancy of the Americans, you earn, because as long as you are alive, regardless of 90 years old, or 100 years old, insurance companies must pay you money. If you do not have an average life expectancy, then you lose, unpaid money to the insurance company. This is a bit like gambling, of course, you can also choose not to earn no way to mention the collar, did not receive the money returned to the beneficiaries. What you need to note is that you do not need to decide which way to take money at the time you bought the annuity, but just choose the right money when you start taking money.
-------------------------------------
Want to learn more about family finance? We are welcome to attend our free investment and financial education seminars held in the offices of the US states from time to time.
one. What is annuity (Annuity)
Annuity is a retirement plan, the so-called retirement plan, the IRS (IRS) has a basic requirement is 59 years and a half ago generally can not take out (withdraw). 10% of today's early withdrawal, which applies to almost all retirement plans, including 401K, SEP IRA, IRA and Annuity.
The main benefit of annuity is the tax-deferral, that is, as long as it does not come out, there is no tax problem. Some people say that only the last tax or to pay taxes, there is no difference, so annoying annoyance. In fact, the power of deferred tax is a major manifestation of three points. First, now you have a job income, retirement does not work, most people's income will be reduced. Income is less, the tax rate also came down. Now pay 30% of the tax, after retirement may only pay 15% of the tax. Second, even if the tax rate is the same, you are willing to pay taxes now, or 20 years after the pay Of course, after 20 years to pay. Because of the inflation factor, 20 yuan after 20 years may only be equivalent to today's 5000. Third, because there is no need to pay taxes every year, you can profit, its end result will be better than the annual tax effect.
Annuity is a large container that can either put a non-qualified plan, that is, a postpayment money, or a qualified plan, such as IRA, SEP IRA, in annuity. Because it is a qualified plan, this annuity can also be tax deductible. There are people who retired, or for work, you can later 401K, 403B rollover to annuity. This kind of rollover or transfer is just another place that does not involve the advancement of the question, so there will be no tax problem, and no more fines.
two. The type of annuity
There are two kinds of annuities, there are three, namely variable annuity (fixed annuity), fixed annuity (fixed annuity) and index annuity (fixed index annuity). This third is popular in recent years.
First said the first variable annuity. Your money to invest in mutual funds, with the market fluctuations, ups and downs can be great. In 2000-2000, the relatively stable S & P 500 index fell by 50%, while the high-tech NASDAQ index rushed to 5000 in 2000. Since then all the way to diarrhea, in 2006 even half of the heyday, until this year only rose back. If you unfortunately put the retirement plan money on this high-risk index fund, it is miserable.
And fixed annuity (fixed annuity) do not dance with the market, the insurance company to give you a minimum interest, usually about 3%, high when there may be 4-5%, it is almost the end, and will not lose money, interest may be just Make up for inflation. But it is impossible to get a higher return.
Jiangshan on behalf of talented people, the leading position for several years, the financial insurance market is also the case, in recent years there has been a new annuity that is the index annuity (fixed index annuity). Insurance companies take your money to invest, how to invest with you no relationship, but your return is followed by several major indices, such as Dow Jones, S & P500 or NASDAQ100 go. These indexes are up, and you are following up, but there will be a cap (upper limit), such as an annual cap of 12% or a monthly limit of 3%. The excess part of the insurance company, less than equal to the upper part of the part of you. But the insurance company guarantees that if the index falls, you do not lose money, value remains unchanged. If the variable annuity is a wave of ups and downs, the index annuity is like climbing stairs, a level up, up to the place, but will not fall. Index annuity because of the guarantee does not lose money, but also enjoy the stock market rose when the higher returns of the characteristics, and in the past few years popular. Some insurance companies to seize the market, returned to 3%, 5%, or even 10% of the one-time bonus (bonus), and thus more favored by customers.
Announcement of annuities
The annuity is the same as the life insurance of the insurance company, and the business is going to make money. The annuity is different depending on the type of annuity.
A) variable annuity (Variable Annuity), the above said variable annuity is invested in the mutual fund, value with the market ups and downs, earn less are you, lost is yours. Variable annuity is mainly two kinds of charges, one is a variety of mutual fund management fees, also known as Expense ratio. Each mutual fund needs someone to operate, need to rent office, advertising, pay staff salaries, bonus to the fund manager, and so on. These are the operating costs of the Fund, is inevitable. Mutual funds can not Load (sales), but there will be management fees, the difference lies in the size of the management fee. General index funds such as S & P500, not active management, management fees rarely, less than 1%. While aggressive management of aggressive funds, management fees are generally greater than 1%, and even 2%, 3%. This management fee is regardless of the stock market ups and downs must be received, and investors can not see from the statement, because it is directly deducted. For example, the A fund rose 8% this year, but in your statement only rose 6.5%; B fund fell 8% that year, your statement was down 9.5%, the more out 1.5% is the mutual fund management fee. Second, the variable fund also has its own unique mortality rate fee. We all know that the value of mutual funds with the market ups and downs, may rise may also fall. If it is a common mutual fund, such as 401K in the mutual funds, investors once died, the beneficiary to get the value of the day the investor died, the value is probably not the highest value. In the variable annuity, the beneficiary is the highest value of the past three years. The present value of death and the highest value of the past three years are generally different, and may be great. Look at the performance of the 2002 mutual fund in 2002. This loss is borne by the insurance company. The world is not eaten lunch, insurance companies to bear this risk, naturally to the charges, which is the so-called mortality risk fee, generally about 1.4%. Recently, some companies launched a guarantee of 6% per year, 7% of the product is also a variable annuity, in addition to the above list of mutual fund management fees, mortality risk fee, but also another 0.35% -0.5% Fee, because it ensures that your value will grow by 6%. (This guarantee is up 6%, 7% of the variable annuity trick in your money when the various restrictions, the next column column to elaborate.) As a result, its annual fee may be as high as 3.5%. In addition, if the cautious annuity balance is less than a certain value, such as $ 25,000, the insurance company will also receive additional administrative fees of $ 30, $ 50 a year, the general mutual fund will also receive.
B) fixed annuity (Fixed Annuity): This annuity insurance company does not charge any fees, there is no administrative fees. Insurance companies take your money to invest, the rate of return in general will be higher than its commitment to your interest (usually around 3%), so the insurance company does not charge. The principle is much like a time deposit (CD).
C) Index Annuity: In recent years, very popular index annuities generally do not charge any fees, neither Load nor sales fee, your return depends on your choice. The rate of return of a certain or several index funds. The index rose, you also rose, there is a cap (cap); index fell to ensure that your value unchanged. You can enjoy the stock market rose when you get the benefits of higher returns, but also to avoid the stock market fell when you lose, so the past few years is very popular. Someone asked, how did the insurance company make money? Insurance companies make money mainly in two aspects, one is how insurance companies and you do not matter, it can vote on the S & P500, you can also vote in other places, the return may be greater than the SQP500. For example, Alliant Life, which sold most of the stock index in the past few years, had a $ 2.5 billion joint venture with Goldman Sachs Investment last month to buy 10% of the shares of ICBC to break into the Chinese market, which is optimistic about the Chinese market and hopes to get long-term High return. The second is the stock index annuity of the CAP, the rate of return is less than equal to the CAP to you, more than part of the insurance company to cover its operating costs.
Four, annuities of the Surrender Period
The annuity is a retirement plan, 59 years before and after the half, generally can not be taken out, this is the IRS provisions, and all the annuities have a surrender period, which is the insurance company's own rules. During this Surrender period, you can not cancel the contract, take the money all the way or go to (transfer or rollover) to other companies to go. If the surrender period is under the period of time, the money is turned away, take out or cancel the contract, will face a fine of the insurance company. If you take all the money at least 59 years old, then there will be a fine IRS. There are 5 years, 7 years, 10 years, depending on which product you are buying.
The fees and fines for the various annuities described in this article can be found in the annals of the annuities, and if fixed annuities or stock index annuities are found in its brochures or brochures.
Fives. Annuity tax law
The greatest benefit of annuity is deferred tax, as long as you do not come out do not have to pay taxes. After 59 and a half years you can take out the money in the annuity, then you will have to pay your income tax. Depending on whether the annuity is a Qualified program or a non-qualified plan. If the Qualified program, such as 401K, IRA, SEP, etc., even with the profits are taxed. How much tax is paid depends on how much money you get from your annuity in the year, plus your other income, including income from social security, to determine your tax rate. If the money on the annuity is the tax after the money, then take out the value-added part of the tax, the principal does not need to pay taxes. It is LIFO (Last In, First Out), which is the terminology of accounting, that is, the interest generated after the first came out, and finally took out the calculation of the principal. For example, you put into the annuity 100,000, and finally into the 180,000, first take 80,000 out, which 80,000 as a value-added, first pay income tax, the remaining 10 million as this, do not have to pay later Tax, which is the opposite of life insurance. Life insurance using FIFO (Fist In, First Out), the cash value out when the first cost, more than the cost of incremental value.
six. Annuities of annuities
As with most retirement plans, the annuity can be made after 59 and a half years later. After 70 and a half years, it is necessary to take out the money, how much is the minimum requirement (RMD), 3.65% at the age of 70, and then increase year by year. 80 years old is 5.35%, 90 years old must be 8.77% of the Value out. Why should IRS hard to specify when you have to take out the money? Because the retirement plan has a tax function, if you do not take out the money, IRS to levy taxes.
Annuity of the variety of ways to mention, you can take all the one-time, you can also divided into 10 years, 20 years or Life time to get the money in the annuity, take the section of the annuity you buy the rules, If you choose Lifetime Income (Life Time income) extraction method, the insurance company is based on people's life expectancy, and then according to your age, calculate how much money a year to pay you. The insurance company guarantees that you will give the same amount of money each year in your lifetime. If you survived the average life expectancy of the Americans, you earn, because as long as you are alive, regardless of 90 years old, or 100 years old, insurance companies must pay you money. If you do not have an average life expectancy, then you lose, unpaid money to the insurance company. This is a bit like gambling, of course, you can also choose not to earn no way to mention the collar, did not receive the money returned to the beneficiaries. What you need to note is that you do not need to decide which way to take money at the time you bought the annuity, but just choose the right money when you start taking money.
-------------------------------------
Want to learn more about family finance? We are welcome to attend our free investment and financial education seminars held in the offices of the US states from time to time.
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