In today’s world, a tax-deferred
annuity is a popular way to accumulate or hold money for and during retirement.
Let us explain the tax advantages and other benefits of annuities, and introduce you
to our exciting annuity portfolio.
An annuity is a financial product that accumulates interest on a tax-deferred
basis. It also provides for systematic annuity payout's on various retirement
income schedules. An annuity contract is not a life insurance policy or a
health insurance policy. It is not an investment product, savings account or
savings certificate, and it should not be bought for short-term purposes.
Annuity contracts vary in a number of ways. The following are some of the more
Annuities may be either immediate or deferred. Immediate annuities provide
income payments that start shortly after you pay the premium. Deferred
annuities provide income payments that start at a later date. The main reason
for buying an immediate annuity is to obtain an immediate income, most
frequently for retirement purposes. The main reason for buying a deferred
annuity is to accumulate money on a tax-deferred basis, which can then provide
an income at a later date.
Annuities may be either single premium or installment premium. Single premium
contracts require you to pay the company only one premium. Installment premium
contracts are designed for a series of premiums. Most of these are flexible
premium contracts. You pay as much as you wish whenever you wish, within
specified limits. Some are scheduled premium contracts that specify the size
and frequency of your premiums.
Annuities may be fixed or indexed, or a combination.
The insurance carrier declares a current rate of interest, guarantees a minimum
rate of return, and guarantees the premium.
FIA's have interest rates that are linked in part to growth in the equity
market as measured by an index such as the S&P 500®. The FIA
owner enjoys the upside potential of equities, but is not exposed to downside
risk. Subject to fixed minimum guarantees, the value of an FIA can only
increase due to index growth it will never decline due to index movement.
National Western Life offers a variety of fixed and fixed-indexed annuities
Before buying, ask yourself these questions.
How much annuity income will I need in addition to Social Security, pension
savings and investments?
Will I need an income only for myself or also for someone else?
How much can I afford to pay in premiums?
How will the annuity contract fit in with my total financial planning?
Buying an annuity contract is a major financial decision which should be considered
carefully. Here are a few points to consider:
Be certain you understand all charges that will be made and how they may reduce
the value of the annuity.
Be certain you can afford the premium payments.
Check whether the annuity contract allows you to change the amount and
frequency of your premium payments. Find out what happens if you stop paying
You may want to obtain and compare Contract Summaries for similar contracts
from several companies. Comparing these should help you in your selection.
If you are buying an annuity contract for an Individual Retirement Account
(IRA), Roth IRA, or another tax deferred retirement program, make sure that you
are eligible. Make sure that you understand any restrictions and tax
implications connected with the program.
If you are shown a presentation, which illustrates tax savings, be sure the
assumptions, such as the tax bracket, apply in your case.
Some companies offer deposit fund arrangements with their life insurance
policies or annuity contracts. These arrangements allow you to pay amounts in
addition to your premiums that will be accumulated at interest in much the same
way as under a deferred fixed annuity contract.
Much of the popularity is due to the favorable tax treatment Congress provided
for annuities. Interest on savings accounts, dividends from stocks and rental
income from real estate is immediately taxable in the year earned. In contrast,
interest credited on a deferred annuity is not taxed until it is withdrawn.
Because taxes are deferred until money is withdrawn, interest is earned on
dollars that would otherwise be paid to the IRS. This results in greater
financial growth than an identical payment a taxable instrument would
In addition to deferring taxes and earning interest on money which would
otherwise be paid as taxes - you may also exercise some control over the timing
In early retirement years, you may have sufficient income from qualified retirement
plans, rental income, or part-time work. If you don’t need additional income
from the deferred annuity, or if you want to delay taxation until later
retirement years when taxable income may be less, distributions can be simply
postponed. Of course, IRS minimum distribution requirements must be met with a
You not only have the flexibility to choose when you begin withdrawals,
but the flexibility to choose how:
As a lump sum distribution less withdrawal charges;
As an income for a specific number of years;
As an income for as long as you live;
As an income for as long as you or your spouse live.
This flexibility also means decisions don’t have to be locked-in today which might
prove inappropriate years from now.