SIPA or Single Premium Immediate Annuity is gaining a lot of popularity among the investors who want a secured future, especially after retirement. Many retirement plans provide a steady income from the retirement age till another 20 or 30 years. It is the best investment plan for both present and future if you want to make a retirement plan. As the majority of the funds are locked in the annuity are returnable principal, so, they are exempt from tax. Only a marginal part of the investment is taxed in actual. They are also used to protect the assets.
The deferred annuities are contracts that are designed for the long-term savings. This is unlike the immediate annuities where the payment starts monthly or annually. Here, the investors can delay the payments to an indefinite time period. At this time, the earnings are tax-deferred. Annuities are the best investment plans but before investing, it must be considered that it is a commitment made for life-long. These investments are taken not for the gains but for security reasons. So, this is an investment that is a source of income for the retired people. If you want to make high gains and high profits then this is the perfect plan.
Forms of Deferred Annuities
In the case of a deferred annuity, funds are deposited in an insurance company either as a fixed, equity-indexed, variable, or longevity annuity. In this, the taxes on the gains made on investments are deferred till the time withdrawal is made. Any amount of withdrawal before attaining the retirement age is subject to a penalty of 10% additionally with the ordinary income tax. They have all the features which provide guarantees on future income and also provide death benefits. Four main categories of deferred annuities are there such as the following:
- Fixed Deferred Annuity- This works like the CDs except that the interest amount is deferred till the time withdrawal is made. In this case, there is a guaranteed rate of interest on the funds.
- Variable Deferred Annuity- It is like investing in the mutual funds. The returns on the investment vary depending on their performances.
- Equity-Indexed Annuity- It functions in some ways like the fixed annuities and in other ways like the variable annuity. It has two parts – a guaranteed return and also the chance of earning higher returns.
- Longevity Annuity – It is like the long life expectancy insurance. This insurance company guarantees payment of life-long income at the age of 85. The income and taxes on this annuity are deferred until the age of 85 years.
Benefits of a deferred annuity
When you use the deferred annuities, you do not need to turn money into a systematic income stream. Rather, you can make withdrawals whenever needed or take it out in a lump sum or transfer them to another annuity. This helps you to control your money and also keeps the options open instead of handing them over to the insurance companies in return forlifetime payments. It is an account having the features of the annuity such as the taxation and the guarantees. They provide lifetime payment and you can annuitize it eventually.