Selling Annuities which are Tax Deferred

Fundamentally, annuities are consisted of two phases, which everybody should know: accumulation stage and payout stage. While you are in the accumulation phase, payments for the annuity must be made regularly either by large single payments or through regular periodic payments. Dependent upon the kind of annuity you have availed of, the annuity value will increase over time according to the predetermined rate of interest fixed by the insurance agency, called fixed rate annuity. The rates may also be variable depending on sub-accounts present, called variable annuities.

In case the annuity you are trying to sell is a tax-deferred annuity, you should calculate the amount of money you can possibly gain before making any decision. Regretting your decision later will be of no help. In both fixed and variable annuities, the value of the annuity increases in the accumulation phase and the taxes on this sum are deferred. However, tax-deferred annuities are not the same as tax-free investments, because the taxes applicable must be paid off later.

The market offers certain tax-free investments like municipal bonds, but an annuity is different since all the profits resulting from the investment will be taxed later. However, you must note that these taxes are payable only after the profits from the annuity are withdrawn.

However, tax-deferred annuities can prove to be a useful weapon in your armory if you are planning long-term investments. Think of a person in the tax bracket of 28% - an inheritance of $10000, which he places in a savings account, will be taxed for income in every year that it sits in the bank. However, the same money put into an annuity investment will be taxed only once he withdraws the amount from the annuity fund.

As seen from the given scenario, tax-deferred annuities can be used to your advantage when you utilize the value of time provided by them. Annuities that earn interest do so using money which you would otherwise have paid as taxes on the savings account.

Nevertheless, tax-deferring is not the lone reason for the growing popularity of annuities as an investment option nowadays. Generally, annuities have maturity dates of 5 to 7 years, but even then you are not required to undergo a battery of tests for medical reports and other requirements. Additionally, annuities can be started with a simple annuity payment contract.

In recent times, annuities provide an investor several options of investments to choose from. All he is required to do is select a plan that suits him the best for his retirement plans. For instance, when a person considers a fixed annuity, he must remember that that the high rates offered by insurance agencies at the beginning are lowered with the progress of time. Some insurance agencies however provide constant rates over a lifetime, so it is best to think long and hard before making any decision of investment.

Alternatively, variable annuities provide you with the option of making the decision regarding the amount of money which has to flow into different accounts. Usually, such accounts can be acquired form financial managers, such as mutual fund institutions that provide investment options in different variable accounts.

An annuity is a good way to begin preparations for you financial retirement and you can even sell your tax-deferred annuities when you find a suitable buyer in an emergency or in a cash-demanding situation.

Resources

Variable Annuities: Beyond the Hard Sell
Annuity (US financial products)