| How long after the initial deposit does the first income payment begin? |
| An immediate annuity pays you an income stream immediately. People often purchase immediate annuities with a single deposit or convert their deferred annuities during their retirement years when a consistent stream of income is desired. Payments begin as soon as 30 days after deposit, but no later than one year from deposit. |
| |
| Which part of each income payment is taxed? |
Regarding payments from an immediate annuity or annuitization, part of each payment the annuitant receives is considered to be a return of principal, which is not taxed. The remaining portion of the payment consists of interest earnings and is taxable. The exclusion ratio determines the taxable and nontaxable portions of each payment. The formula is:
| Investment in the Contract |
 |
| Expected Return |
|
| |
| What is the exclusion ratio? |
Regarding payments from an immediate annuity or annuitization, part of each payment the annuitant receives is considered to be a return of principal, which is not taxed. The remaining portion of the payment consists of interest earnings and is taxable. The exclusion ratio determines the taxable and nontaxable portions of each payment. The formula is:
| Investment in the Contract |
|
| Expected Return |
The exclusion ratio runs out when all of the principal in the contract has been received (assuming you reach that point in the contract). When the entire amount of principal has been exhausted, the entire annuity payment will then be taxable.
|
| |
| How long does the exclusion ratio take effect? |
| The exclusion ratio runs out when all of the principal in the contract has been received (assuming you reach that point in the contract). When the entire amount of principal has been exhausted, the entire annuity payment will then be taxable. |
| |
| What are the payment options? |
Period Certain: You (the annuitant) can select to receive periodic payments for a specified period of time. The contract value and the length of the period you select determine the payout amount.
Life Only: Periodic payments will be based on your (the annuitant) life expectancy and the contract value. This option can pay you an income that can’t be outlived regardless of your original annuity value. In the event of death, the annuity payments cease.
Life with Period Certain: You will receive periodic payments throughout your lifetime. Additionally, you have the option to add a designated period (usually 5 years or more) whereby the insurance company will guarantee the payments to your beneficiary if you die within the designated “period certain.” Example: A “life with 10 years certain” option pays you (the annuitant) for a lifetime. If the annuitant died in the second year, then the company would pay the beneficiary for the balance of the 10-year certain, or 8 years. Payments would then stop.
Life with Refund Annuity: Periodic payments will be received for the annuitant’s lifetime. If the annuitant should die before receiving an amount equal to the original premium deposit, the payments will then go to the beneficiary until the total payments made (to both the annuitant and beneficiary) equal the amount equal to the original deposit.
Joint and Survivor Annuity: The annuitant and their spouse will receive payments for their life. Payments cease at the second death. You can attach a “period certain” to this option, or a reduction to the surviving spouse at the first death. Example: A “Joint and 50% Survivor” option would pay half of the income payment to the surviving spouse at the first spouse’s death.
|
| |
