ANSWERS: 1
  • Deferred fixed annuities enable you to save for your retirement, at a guaranteed rate of interest, and provide a source of lifetime income once you've retired. Generally, you set up an annuity to receive fixed amounts on a regular basis after retirement. But if you find it necessary to withdraw funds before retirement, look into ways to minimize your tax liability.

    Withdrawal Options

    You can withdraw all of your money at once, terminating your annuity contract; however, this may result in an increase in your taxable income and place you in a higher tax bracket. If you prefer to withdraw money as needed, you decide on a set amount, which is withdrawn from your deferred fixed annuity account and directly deposited into your bank account. Annuitizing your income enables you to receive guaranteed income for the rest of your life. Some of your payments will include taxable income earnings, but the remainder of your deferred fixed annuity can continue to accumulate investment income tax-free. If you think you'll be in a lower tax bracket when you retire, consider receiving periodic annuity payments after you retire, which can further reduce the amount of taxes you'll have to pay. If you die before the end of your guaranteed period, the remaining funds in your deferred fixed annuity account can be transferred to your beneficiaries, who will need to pay taxes on the funds as part of your estate.

    Penalties

    You may be penalized for withdrawing your deferred fixed annuity funds before reaching age 59 ½. "Since the IRS allows you to save money tax-free for your retirement, withdrawing funds early from your deferred fixed annuity results in a 10% IRS penalty," according to Bankers Life and Casualty Company. Some insurance companies may charge a withdrawal fee when you withdraw funds early. Fees can be based on a percentage of your investment amount, or a percentage on the value of your account, which includes your earnings. You may be able to withdraw a percentage of your deferred fixed annuity funds without paying a withdrawal charge, although you would still have to pay the IRS penalty. Check with your insurance company to see if this option is available.

    Source:

    Bankers Life and Casualty Company website: Choices for withdrawing money from a deferred annuity

    More Information:

    Bankers.com: Are There Circumstances Where Funds May Be Withdrawn Charge-Free?

    NewYorkLifeAnnuities.com: Fixed Interest Deferred Annuities

    MetLife.com: Withdrawing Money From a Deferred Annuity

Copyright 2023, Wired Ivy, LLC

Answerbag | Terms of Service | Privacy Policy