Annuity Funding Explained

When it comes to annuity funding and annuities in general many 
people are confused. The problem is often because there are so 
many different kinds. There’s single or flexible-payment, fixed 
or variable, and deferred or immediate. 

Regardless the type of annuity funding you’re ultimately 
interested in, all annuities are financial contracts which have 
been created to provide you with a good source of income in your 
retirement years. 

Because of the long term nature of annuity funding it’s important 
you understand your options and have all your questions answered 
by an expert in the field prior to investing any of your money in 
a fund. The first step is to find a financial company you can 
trust and then explore your options. 

Annuity funding begins with deciding on what type of annuity best 
suits your needs. 

You can choose from a number of annuity options which include a 
lifetime income, a guaranteed period income where your 
beneficiaries would receive any remaining payments, a joint and 
survivor option for couples as well as many other options that a 
financial advisor or insurance representative can tell you 
about. 

In many cases, options can be mixed and matched to provide you 
with the best kind of annuity funding possible. 

The money contributed to any annuity funding may be in post-tax 
dollars. The advantage to this is that you can contribute as much 
money as you would like. However before you put any after-tax 
savings into any kind of annuity funding, it’s often advisable 
for you to put the maximum pre-tax amount into a retirement plan. 

When an annuity is used to fund a retirement plan, contribution 
limits usually apply. Federal tax laws also generally require 
that you begin taking minimum distributions by April 1 of the 
calendar year following the year in which you reach age 70. 

Annuity funding earnings are taxed as ordinary income. It’s 
important to note that if your ordinary income rate at retirement 
is greater than the current capital gains rate for other 
investments, you would actually pay more in taxes. 

The upside is you do receive a tax deferral on any earnings. 
Other investments you may have could be subject to ordinary 
income as well as capital gains taxes annually, even if you 
have not cashed in the investment. 

Protect yourself and your money by exploring the pros and 
cons of all your annuity funding options prior to committing 
yourself to anything. 

The bottom line is that since annuity funding is a long-term 
investment vehicle you'll want to make sure that any annuity 
company you select will be in business for the length of 
your fund.

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