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Annuities can be an important addition to your retirement savings program, because their earnings are tax-deferred for most people. UVEST registered sales representatives, located in most TCF locations, offer access to fixed annuities and variable annuities to meet differing financial goals.
Additional information about fixed and variable annuities is provided below.
- What is a fixed annuity?
A fixed annuity is an insurance contract. Some of the features
of a fixed annuity include:
- The contract earns interest. The interest rate is fixed
by the insurance company for one year at a time, and is reset
every year at the insurance company's discretion.
- Interest accumulates tax-deferred for most people. You may
not have to pay income tax on the earnings until they are
actually withdrawn. Consult your tax advisor for more details.
- When the time comes to draw on your annuity, you have choices
on how you want the money to be paid out. Payout options include:
- Life income - a monthly check for as long as you live
- Joint and survivor - a monthly check for you and your
spouse for as long as either of you live
- Fixed period - monthly checks for five to 30 years <
- Account statements will be sent to you at least annually.
- Is tax deferral really important?
The chart below illustrates the impact of tax deferral over a
30-year period at an assumed fixed rate of 3.0%. To help you understand
the chart, some important information about the chart is provided
below:
- The chart illustrates a fixed annuity.
- The 3.0% interest rate is the assumed minimum guaranteed rate on
some fixed annuity products that may be available (subject
to change by the insurance company). Any examples showing
a higher rate are for illustrative purposes only, and are
not a guarantee, prediction or estimate of the rate that will
actually be paid. Your rate could be lower.
- The example assumes a single initial premium of $10,000.
The bar labeled "tax-deferred" illustrates the accumulated
value of the annuity after 30 years at the assumed rate, before
taxes and before any tax penalties that may apply upon withdrawal
or surrender before age 59½, and before any contract
charges for early withdrawal or surrender.
- Upon withdrawal or surrender of the annuity, the contract
gain (the difference between the accumulated value and the
premium) will be taxable.
- Assuming a combined state and federal 35% tax rate (and
no tax penalty for withdrawal or surrender before age 59½),
the accumulated value of the annuity after taxes would be
$19,277 for the 3.0% annuity example (assuming no previous
withdrawals). The benefit of tax deferral will not be as great
for people in a lower tax bracket. There is no tax benefit
for people with no taxable income.
- The effective annual yield or total return will fluctuate
along with market and other economic conditions (a market
rate of interest is not guaranteed). Past performance does
not guarantee future results.
$10,000 Single Premium
Compounding for 30 Years
At 3.0% Interest Rate
This is a hypothetical example and is not representative of any specific investment. Actual results will vary.
- Is there more than
one kind of fixed annuity?
There are several types of fixed annuities.
- Single premium - This type of annuity
has a one-time opening amount that can vary by product.
No further additions are allowed.
- Flexible premium - This type of
annuity accepts additions after it is opened. The
minimum opening amount is usually smaller than the minimum
opening amount for a single premium annuity. Automatic
transfers from savings or checking to the annuity may
be established.
- Immediate - This type of annuity
provides an immediate income stream, consisting of interest
and return of principal.
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What is a variable annuity?
A variable annuity is an insurance contract that combines
the advantages of tax deferral with professionally managed
investment portfolios.
With variable annuities, you select from different investment
options with investment objectives to best meet
your needs.
Unlike a fixed annuity, where your rate of return is
fixed for a specified period, the rate of return on a
variable annuity will fluctuate. This varying rate of
return is tied to the performance of the different investment
options that you choose.
These investment options can have the potential for higher
returns than a fixed annuity, but with higher potential
risk of loss.
- What are the important
features of variable annuities?
Annuity product features vary by state and insurance company. Guarantees are based on the claims paying ability of the issuer. Withdrawals made prior to age 59 ½ may result in a tax penalty.
You should consider a variable annuity's risks, charges, and expenses carefully before investing. Contact your UVEST registered sales representative, located in most TCF locations, to request a prospectus, which contains this and other information about a specific variable annuity. Read it carefully before you invest.
Past performance is no guarantee of future results. Investment return and principal value of a variable annuity will fluctuate, causing shares, when redeemed, to be worth more or less than their original cost. Withdrawals made prior to age 59 ½ may result in an IRS penalty.
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