According to The National Association of Insurance Commissioners Buyer’s Guide, “An indexed annuity is a fixed annuity, either immediate or deferred, that earns interest or provides benefits that are linked to an external equity reference or an equity index. When you buy an indexed annuity you own an insurance contract. You are not buying shares of any stock or index. An indexed annuity is different from other fixed annuities because of the way it credits interest to your annuity’s value. Indexed annuities credit interest using a formula based on changes in the index to which the annuity is linked. The formula decides how the additional interest, if any, is calculated and credited. How much additional interest you get and when you get it depends on the features of your particular annuity. Questions you should ask your Agent or the Company You should ask the following questions about indexed annuities in addition to the questions in the Buyer’s Guide to Fixed Deferred Annuities. * What is the guaranteed minimum interest rate? * How long is the term? * What is the participation rate? For how long is the participation rate guaranteed? * Is there a minimum participation rate? * Does my contract have an interest rate cap? What is it? * Does my contract have an interest rate floor? What is it? * Is interest rate averaging used? How does it work? * Is interest compounded during a term? * Is there a margin, spread, or administrative fee? Is that in addition to or instead of a participation rate? * What indexing method is used in my contract? * What are the surrender charges or penalties if I want to end my contract early and take out all of my money? * Can I get a partial withdrawal without paying charges or losing interest? Does my contract have vesting? If so, what is the rate of vesting? Final Points to Consider Remember to read your annuity contract carefully when you receive it. Ask your agent or insurance company to explain anything you don’t understand. If you have a specific complaint or can’t get answers you need from the agent or company, contact your state insurance department.

Jeff McLeod is a retirement income fixed index-linked annuity specialist. To get a copy of the Buyer’s Guide visit http://www.HappyRetiree.com.

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About the Author

Jeff McLeod is a retirement income fixed index-linked annuity specialist. To get a copy of the Buyer’s Guide visit http://www.HappyRetiree.com.

Tags: tax sheltered annuity, annuities, fixed annuities, annuity calculator, immediate annuity

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Today many parents are looking for additional sources of cash to cover the ever-increasing cost of college education, preferably ones that do not require more loans or borrowing against home equity. More and more, they are looking toward selling annuities to help foot the bill.

An annuity is a tax-deferred contract, typically purchased through an insurance company, which allows you to accumulate funds on a tax-deferred basis, and receive income for a specified time period. Annuities are typically thought of as retirement vehicles, but according to J.G. Wentworth, the leading finance company specializing in the secondary market for annuities, they are gaining popularity as personal finance tools for other important family goals such as college.

Parents are doing all they can to help provide their children with the opportunity of a college education and minimize the debt load they will have to carry after graduation. Many grandparents are also contributing to their grandchildren?s education. A recent survey by the MetLife Mature Market Institute showed that 55% of grandparents surveyed who had grandchildren under age 21 contribute in some way to their college education, with 21% setting up a fund for tuition.

?More investors who hold annuities or those who anticipate inheriting them have inquired about leveraging their assets to fund college tuitions,? said Michael Vaughan, Managing Director of the J.G. Wentworth Annuity Purchase Program. ?For parents able to utilize part of the income stream of an annuity to raise a lump sum of cash, it is a valuable alternative to taking out another loan or borrowing against home equity lines. For grandparents, in addition to making an important investment in the future of their grandchildren, selling all or part of an annuity can actually make their estate planning easier.?

Annuities can increase the complexity of estate planning issues, because they are subject to the estate transfer tax which can deplete the annuity of almost 50% of its value. Children who inherit an annuity from a deceased parent can also inherit a hefty tax bill along with it. As the beneficiary, he or she is responsible for the taxes on the annuity?s gains at their ordinary income tax rate.

Selling your annuity through a secondary market provider such as J.G. Wentworth not only provides the cash stream necessary to make a college education possible, but it can also rescue your beneficiaries from a heavy tax burden down the road.

Tags: variable annuities, what is an annuity, annuities, tax sheltered annuity, annuity calculator

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The settlement is called “structured” because the initial award ($4,000,000 in this example) is divided up into equal payments that are paid to the victim at precisely defined time intervals.

If the settlement is structured to pay the victim $100,000 a year, the period of the settlement is 40 years. Therefore, the victim would receive a payment of $100,000 each year for the next 40 years. The total amount of cash received by the victim would be 40 years x $100,000 per year, which equals the original award amount of $4,000,000.

Many people think the paying party has to put $4 million into a bank account set up for the victim. They also think that $100,000 will be withdrawn from that bank account each year and paid to the victim. At the end of 40 years, the victim’s special account would be empty and the victim would have received the full amount of the award.

That’s one way of setting up a structured settlement. From the point of view of the paying party, there is a less costly financial tool for setting up a structured settlement. That tool is called an annuity.

An annuity is a large sum of money set up to pay the recipient a fixed amount of money at regularly-defined time intervals. But wait, you might say. That’s the same as putting $4 million in the bank account and paying it out over the 40-year period!

That’s almost true. The power of an annuity comes from the fact that it can be set up by depositing a much lesser amount into an interest-bearing or an interest-earning account.

Before continuing, you need to remember these important points. The court ordered the paying party to pay the victim $100,000 a year for 40 years. The paying party is not required to submit a lump sum of $4 million to be paid over the 40-year period. As long as the paying party pays the victim the specified amount at the specified time intervals, they are in full compliance with the law.

U.S. law specifies that annuities can only be set up by independent, neutral third-party insurance companies.

To set up the structured settlement, the paying party does have to have to submit a lump sum to the insurance company to be put into an interest earning account. But the power of annuities allows the paying party submit a lump sum that is much smaller than the total reward.

For example, if the structured settlement account consistently earns 5% interest per year, the paying party only needs to invest a one-time sum of $2,000,000. Each year, the $2 million would earn 5% interest. At the end of each year, the account total would be $2,100,000. The extra $100,000 would be paid to the victim, leaving the original $2 million in the account.

If the paying party can find an account that pays 10% interest, it would only have to invest a one-time sum of $1,000,000. At 10% annual interest, a sum of $1 million makes $100,000 per year, which would be paid to the victim.

At 15% interest, the paying party would have a one-time investment of $666,667 in order to pay the victim the required $100,000 per year.

As you can see, the more interest a structured settlement account earns, the smaller the sum the paying party has to invest in order to create the annual payments to the victim. The above examples use simple interest to avoid the complexities of real-world finance. However, the principle of the annuity works the same.

If it seems that the paying party is getting off easy, consider these points. First, the paying party is being deprived of a large chunk of money for 40 years. Second, they are complying with the terms of the structured settlement. And third, if your company was required to make these payments, wouldn’t you do it in the most economical way possible?

The resource below has more free information about how structured settlements work.

About the Author:

Got a structured settlement and don’t know whether to keep it or sell it? Find the answers at http://StructuredSettlements.LoansForAnyCredit.com

Tags: variable annuities, annuity rates, annuity calculator, what is an annuity, fixed annuities

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The principle behind annuities is really the concept that it takes money to make money. When there is a large sum of capital available for investment, it is possible to make an even larger sum of money. An individual is faced with several problems, however, when it comes to investing large sums of available capital. The first problem is taxation. The risks involved in investing can be another problem. Most individuals do not have the knowledge necessary to reduce investment risk to a manageable level.

Insurance Companies have the expertise to wisely invest large amounts of capital and realize substantial returns. The idea behind an annuity is the transfer of the risks and responsibility of earning a return on investments from the individual to the Insurance Company. The individual, who is called the annuitant, purchases an annuity by paying a lump sum of cash to the Insurance Company. After a certain period of time, the Insurance Company begins to make regular and guaranteed payments to the annuitant. These payments can be made monthly or yearly and for various periods of time. The payments can continue for a lifetime and in some cases even beyond as the payments continue to a designated beneficiary.

An annuity is a win/win situation. The annuitant has transferred all the risk and is insured a steady and reliable income from his investment. He has also deferred his tax obligation until the time he actually receives the payments. The Insurance Company has assumed all of the risks, but has the potential to make a profit by skillfully investing the lump sum.

The amount and duration of the regular payments made by an annuity will vary according to the type of annuity. Some annuities tie the payout to a variable index such as a mutual fund. Under this very attractive annuity plan, the annuitant has the possibility of sharing in some of the investment earnings while deferring any tax liability until a later date. Some of the risk is assumed under this type of annuity, but that risk is minimized by being spread out over the term of the annuity.

One good example of the value of an annuity and how an annuity works is the large lottery winner. In most cases, a lottery winner is given a choice of taking his winnings in a single lump sum payment or as an annuity. The single lump sum payment is considerably less than the face value of the winning ticket. The total of the annuity payments, however, will equal the entire winning amount. The number of people who end up in financial difficulty shortly after receiving lump sum payments is one of the most compelling arguments for the value of annuities.

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There are several distinct annuities you can chose from. The differences tend to revolve around the method of payments and the system used to determine the payouts. The most basic type is the fixed annuity. A fixed annuity makes payouts at a fixed amount or increase or decrease on a fixed schedule. The annuities that are used in lottery winnings are an example of fixed annuities. Often, other large sum settlement annuities are also fixed.

The variable annuity is tied to some index. This index is often a financial instrument like a bond issue or mutual fund. With a variable annuity, there is a possibility of investment earnings. This would happen when the index goes up producing larger payouts. The advantage of the variable annuity is that these earnings are tax deferred. The tax due on them would not have to be paid until the payment has actually been made. Variable annuities also combine the best of both approaches to the handling of large sums of excess capital. They provide a regular income, but this income could be increased by successful investing.

Although the actual investment is done by the Company that issues the annuity, they normally establish several different sub-accounts based on different types of investments. The annuity holder has the option to move his funds from sub-account to sub-account without incurring any fees. This allows the annuity holder to maintain a certain degree of control over the investment choices. Since many people have a desire to keep some control of their financial fate firmly in their own hands, the variable annuity with several options is highly popular.

The various annuities have unique pay-in methods. With a single premium annuity, the entire amount is paid at once. After a certain period of time, the payouts begin. The capital amount could originate from many sources. It could have been a lottery winning or a personal injury settlement. A distribution from a retirement plan could be reinvested in an annuity. In some cases, the single sum simply represents excess investment capital. The annuity is an extremely valuable financial tool and can be utilized in many different situations.

It is also possible to purchase an annuity by making a series of payments to fund it. In some cases, there is a combination of a single premium payment and subsequent payments. The payments continue for a period of time and then the payouts begin. This type of annuity is often used in retirement and estate planning. It is especially useful for people who wish to invest more than the limits of their IRA plan allows. The different types of annuities allow a person to find one that suits his own particular financial circumstances. It is a good idea to have an Insurance specialist carefully explain the various options and make a recommendation of which type will be the most appropriate for your needs.

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After a chorus of complaints, the National Association of Securities Dealers (NASD) and the Securities and Exchange Commission (SEC) are finally taking notice. In a recent securities conference in Chicago, NASD officials pointedly warned brokerage firms that they are opening themselves up to civil liability where equity-indexed annuities are concerned.

The NASD also clearly asserted its authority to oversee the suitability of transactions involving equity-indexed annuities. ?Whenever unsuitable recommendations are made, we have jurisdiction?, said Jim Shorris of the NASD.

This is good news for investors and bad news for the charlatans that have been using this product to milk seniors out of thousands and thousands of dollars. Now, those investors can turn to the NASD for help. The actions of the NASD also increase the potential success of civil lawsuits brought by investors.

It?s not just the NASD that is taking notice. Recently, I was invited by the Financial Planning Association to participate in a conference call with several SEC officials. The SEC had looked into equity-indexed annuities several years ago but failed to take action. Let?s hope that this time it will be different.

You might not think that NASD or SEC involvement is all that revolutionary, but it is. Let me explain. Brokers who are licensed to sell investments are regulated at the Federal level. The NASD and SEC police their actions.

Equity Indexed Annuities, though, are not regulated at the federal level, but by each state?s Insurance Commissioner. Even though Equity Indexed Annuities are technically an insurance product, they are being marketed as an investment. But all an agent has to do to be able to sell them is sit through a five-day course and pass a simple test on health and life insurance.

It used to be that Equity-Indexed Annuities were mainly sold by independent insurance agents. Now, they are being sold by brokers who work for the larger brokerage firms. The high commissions these products pay are simply too enticing. Worse, these brokers aren?t selling them under the umbrella of their firm. They are selling them as what is termed an ?outside business activity?.

That means that even though you are talking to a person that works for a big brokerage house and that person is recommending you sell your variable annuity, pay a penalty and move the money into an equity-indexed annuity, the firm is not policing that transaction. Every other trade done by the broker must meet strict compliance and regulatory standards. The sales of equity-indexed annuities do not.

If an advisor were to place 100% of a client?s investable assets into a variable annuity or a single stock or mutual fund, they would likely face fines and possible revocation of their license. At the very least, they would be opening up themselves and their firm to potential lawsuits. Yet, I often hear of advisors telling a client that they should put 100% of their money into Equity Indexed Annuities.

Under federal regulation, an advisor can?t recommend a client pay a 7% penalty to get out of one annuity and move then move that money into another high commission product. That?s just like a stockbroker getting you to constantly buy and sell stocks so they can earn a commission?it?s called churning. Yet, I see advisors using the ?bonus? offered by some Equity Indexed Annuities to do just that.

Now that the NASD has clearly stated that these advisors can no longer sell equity indexed annuities outside of their firm?s regulatory umbrella, hopefully some of these unethical sales practices will be put to a stop. But investors need to beware! The high commissions these products offer, sometimes as high as 13%, are just too tempting for many advisors to ignore. Don?t expect them to change their ways overnight.

The increased scrutiny of equity-indexed annuities can only be good for the investor. Carefully research this and any other investment before you buy. Otherwise, it might be an investment you quickly regret.

Tags: fixed annuities, what is an annuity, immediate annuity, annuities, allstate annuity forms

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Before you can join the growing ranks of annuity buyers, you need to know something about the variety of annuities that are available to you. There are a good number of annuities available and finding the right one for you can be difficult. You’d be wise to consult with a qualified professional before buying any annuity they can take a look at your personal circumstances and help find the right annuity for you.

The first decision you’re going to have to make is how you want to actually buy your annuity. You could either buy it outright or even by installments. A lump sum annuity is pretty straightforward to understand. You just promptly pay your money in and then you can just sit back and watch as your investment grows. Fortunately, for those of us who are on tighter budgets, you can choose to pay monthly instead.

When you start to consider an annuity, you’ll soon discover that there are basically three kinds of annuities that are offered to you. These are the variable annuity, the fixed annuity, and also the hybrid annuity.

A variable annuity is an investment, where the payments you receive are determined by how well your mutual funds perform. You can select the mutual funds from a list or you can ask the annuity company to choose them. The big downfall with this annuity is if the market was to perform very badly, you could end up losing all of the money that you invested in this annuity.

Hybrid annuities are similar to variable annuities but with an hybrid annuity you will always receive a set minimum payment. This gives you the advantage of still being able to benefit when the market does well and also receive a set minimum payment when the market doesn′t do so well.

When buying an annuity, you′ll find that you can choose how you want to withdraw funds from it. You can choose to receive either a lump sum or you can receive payments over a set period of time.

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Mark Gardner is a popular webmaster and publisher of my-annuities.com To get more information for Annuity Buyers check out his website today!

Tags: allstate annuity forms, annuities, tax sheltered annuity, annuity calculator, what is an annuity

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A decades-old IRS ruling generally postpones tax on the exchange of appreciated property for a private annuity, a result inconsistent with the tax treatment of exchanges for commercial annuities or other kinds of property. This ruling was originally based in part on the assumption that the value of a private annuity contract could not be determined for federal income tax purposes. This assumption is no longer correct.

The ruling has its roots in authorities that applied the "open transaction doctrine," which has been eroded in recent years. In addition, the Treasury Department and the IRS have learned that the ruling has been relied upon inappropriately in a number of transactions that are designed to avoid U.S. income tax. The guidance issued today proposes to declare the ruling obsolete. Charitable gift annuities would not be affected by the proposed guidance.

If adopted, the guidance would be effective immediately for transactions not completed before October 18, 2006. Recognizing, however, that many legitimate estate planning transactions may currently be in process, the effective date is postponed for six months for some transactions that pose the least likelihood of abuse.

Tags: annuity calculator, annuities, fixed annuities, annuity rates, what is an annuity

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Fixed Annuities and CDs are low risk investments with guaranteed rate of returns based on interest rates, both are issued by financial institutions, CDs by banks, Annuities are offered by insurance companies. CDs have FDIC protection to guard against Bank failures. Annuities also have safety measures put in place by each State to ensure Insurance companies have reserve pools in place. The guarantee for annuities is based on the claims paying ability of the issuer. Investors can compare the financial strength of Insurance companies using the ratings from firms such as Standard & Poor’s, Moody’s, A.M. Best, etc.

Differences:

Annuities carry several benefits.

• Generally higher returns
• Tax-Deferral of earnings
• Potential liquidity

Higher Returns:

Fixed Annuities, like CDs, are hinged to interest rates. But when rates are low so are CD returns, but annuities have a minimum guarantee in place, usually 3% or 4%. Your investment will never dip below the guaranteed minimum interest rate during times of falling or low interest rates.

Tax-Deferral:

You pay annual taxes on CD interest earned without being able to withdraw funds until your investment term is over. With Fixed Annuities, there is also a set term, but the earnings are tax-deferred. You only pay taxes on interest earned when money is withdrawn. So with Fixed Annuities the deferred tax on your interest remains in the investment potentially earning you more money, instead of being paid out to state and federal tax agencies on a yearly basis.

Potential Liquidity:

CDs do not allow you to withdraw any monies during term. Some annuities have provisions that allow you to withdraw money, generally 10% of your account value annually. Plus many contracts allow you to remove the earned interest on a monthly basis, of course if you do, it becomes taxable income. Several other contract provisions allow you access to all of your funds such as in the event you are hospitalized, undergoing a life-threatening illness, subjected to a permanent or extended stay in a nursing home, or other major calamities that affect you economically. In addition, annuities can be structured to pay-out for the life of the owner and/ or his or her spouse, or over a fixed term such as five or ten years, thereby spreading out your tax-burden and providing enhanced income security.

Tags: allstate annuity forms, tax sheltered annuity, indexed annuities, annuity calculators, annuity rates

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Of all the forms of income generating investments, annuities are some of the most controversial ones. Annuity - derived from the Latin word ‘annus’ - is basically an insurance product sold by insurance companies through authorised agents. This type of investment facilitates a series of payments in the future, in a defined manner, in exchange for an up-front payment of money.

There is a group of individuals who think that annuities are a waste of time and there are much better tools of investment such as stock market or property. But then again both the above forms of investment are vulnerable to crash and do not score very high in comparison to annuities, with respect to safety.

Annuities are commonly of two types first Deferred and the other Fixed. In the case of ‘Deferred Annuity’, the payments are made usually on a monthly basis for a number of years. This form of annuity makes sure that a younger person acquires a good income in his later years. In the latter form that is ‘Fixed or Immediate Annuity’, the purchaser pays a large capital sum usually to an insurance company and payments begin soon thereafter.

One of the biggest hurdles faced by annuities today is inflation. At the outset the agreed sum to be paid out by the insurance company might look excellent and very heart warming, but inflation can erode the value of your investment at an alarming rate.

Another draw back with annuities is that instead of being a long-term capital gain the earnings on annuities are taxable just as income is. Plus there are certain stringent rules and regulations governing the deposit that may not be customer friendly. One of which is that the customer cannot withdraw the money until he turns 59.5 years or else he would be charged a 10% penalty for withdrawing the same prematurely.

So why should you consider Annuities as a mode of investment? Frankly any individual planning to invest in annuities should be the one who is not already contributing his maximum to other forms of retirement schemes. However, annuities are an excellent mode of investment for individuals in higher tax brackets. In those years of high tax liabilities, annuities make a lot of sense, as these savings are tax exempt. Tax is only due when income is received for the plan. That means you start drawing your annuity after you have stopped earning a high salary.

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Tags: annuity calculators, immediate annuity, what is an annuity, fixed annuities, allstate annuity forms

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