1. In the accumulation phase, you (the annuity owner) send your
premium payment(s) (all at once or over time) to the annuity issuer.
If these payments are made with after-tax funds, you may invest an
2. The annuity issuer places your funds in its general account.*
Your annuity contract specifies how your principal will be returned
as well as what rate(s) of interest you'll earn during the
accumulation phase. Your contract will also state what minimum
interest rate applies.**
3. The compounding interest on your annuity accumulates tax
deferred. You won't be taxed on these earnings until funds are
withdrawn or distributed.
4. The issuer may collect fees to manage your annuity account. You
may also have to pay the issuer a surrender fee if you withdraw
money in the early years of your annuity.
5. Your annuity contract may contain a guaranteed** death benefit or
other provisions for a payout upon the death of the annuitant. (As
the annuity owner, you're most often also the annuitant, although
you don't have to be.)
6. If you make a withdrawal from your deferred fixed annuity
before you reach age 59½, you'll not only have to pay tax (at your
ordinary income tax
rate) on the earnings portion of the withdrawal, but you
may also have to pay a 10 percent premature distribution tax, unless
an exception applies.
7. After age 59½, you may make withdrawals from your annuity without
incurring any premature distribution tax. Since nonqualified
annuities have no minimum distribution requirements, you don't have
to make any withdrawals. However, your annuity contract may specify
an age at which you must begin taking income payments.
8. To obtain a guaranteed** fixed income stream for life or for a
certain number of years, you could annuitize, which means exchanging
the annuity's cash value for a series of periodic income payments.
The amount of these payments will depend on a number of factors,
including the cash value of your account at the time of
annuitization, the age(s) and gender(s) of the annuitant(s), and the
payout option chosen. Usually, you can't change the payments once
you've begun receiving them.
9. You'll have to pay taxes (at your ordinary income tax
rates) on the earnings portion of any withdrawals or
annuitization payments you receive.
*These funds are invested as part of the general assets of the
issuer and are therefore subject to the claims of its creditors.
**All guarantees are subject to the claims-paying ability of the
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Most state and federal statutes protect annuities
from civil liabilities, liens and debt claims.
owners and professionals, especially those that are susceptible
to liability litigation, protect their wealth inside of
It is important to check applicable exemption laws in
your state before
investing in an annuity for the purpose of
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