Advantages for People 60 or Older
The chief benefit of an immediate annuity is that it locks in a monthly income stream in retirement.
- During annuitization, each payment consists of principal and interest, spreading the recipient's tax liability evenly among payments. Through distribution options, contract owners control when they will pay taxes on their earnings.
- There is no required minimum distribution because of age, as with other retirement plans. Unlike 401(k)s and IRAs, which require withdrawals beginning at 70 1/2, owners may be able to wait much longer with annuities. When they decide to begin receiving payments, they can usually select from among several settlement options.
- Tax-deferred annuitants are taxed only when money is removed, at which time the recipient pays tax on the gain first and then recovers basis only after gain is removed.
- Another potential advantage is a guaranteed death benefit: Most variable annuities have a feature that if the owner dies when the underlying investments are at a loss, the beneficiary is paid the value at the date the annuitant dies, or the original amount invested, whichever is greater.
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