Annuities have two functions: the first is the accumulation stage where the account holder deposits money, sometimes called purchase payments, in an on-going basis and sometimes in one lump sum. The next stage of an annuity is the payout stage, where you simply began to withdraw your money out of the annuity.
The accumulation of your money within the annuity is depends on what type of annuity you own. The value of your money will grow either by the interest rate that is set by the insurance company called a fixed annuity or you can take advantage of the stock market without the risk of the stock market with an indexed annuity. What I mean by that is your money has the potential for growth during prosperous economic times, but should the stock market crash your guaranteed not to lose a dime of your initial premium and credited interest. Both types of annuities allow your money to grow tax-deferred.
Something important that I want to note is that tax-deferred is not tax-free. An example of a tax-free investment is a municipal bond which doesn't incur any income taxes on gains whatsoever. Annuities are tax-free during their growth period allowing your money to double quicker, but when you choose to withdraw your money, you will be taxed on the gains from your annuity.
Now I'm going to talk about two rules worth knowing; the rule of 72 and the rule of 108. You often hear about those rules but I've found that a lot of people don't quite understand these principles. The rule of 72 estimates how long it takes tax-deferred money to double at an anticipated growth rate. What does that mean? Well, let me give you an example. Let's say you earn 6% per year, so you take 72 divide that by 6 and you get 12 years. So that means with a tax deferred investment, like an annuity, in 12 years your money will double at 6%. The rule of 108 is the time it would take for a taxable investment to double. Let's say you have your money in a CD, mutual funds, or stocks and you're paying taxes on that money every year; using the same example of the growth rate being 6% per year. So 108 divided by 6 is 18 years. It would take 6 years longer for a taxable investment to double, showing the clear difference of the compounding, tax-deferred interest you only get with an annuity in a nutshell.
The power of tax-deferral is clear, but there is something else I want you to keep in mind. With higher interest rates, higher tax brackets, and longer maturities, the power of tax-deferral becomes even more apparent.
We represent over a dozen of the nation's top rated life insurance and annuity providers. We'll provide you with information and pricing on every service available at your location and let you choose. No more high-pressure, heavily biased sales pitches from pushy insurance salespeople.
Life's Protection
Bobby E Richardson
Phone: (386) 308-9626
Fax: (407) 210-1602
bobby.richardson@lifesprotection.com
http://www.lifesprotection.com
Article Source: http://EzineArticles.com/?expert=Bobby_E_Richardson
Article Source: http://EzineArticles.com/6179767
The accumulation of your money within the annuity is depends on what type of annuity you own. The value of your money will grow either by the interest rate that is set by the insurance company called a fixed annuity or you can take advantage of the stock market without the risk of the stock market with an indexed annuity. What I mean by that is your money has the potential for growth during prosperous economic times, but should the stock market crash your guaranteed not to lose a dime of your initial premium and credited interest. Both types of annuities allow your money to grow tax-deferred.
Something important that I want to note is that tax-deferred is not tax-free. An example of a tax-free investment is a municipal bond which doesn't incur any income taxes on gains whatsoever. Annuities are tax-free during their growth period allowing your money to double quicker, but when you choose to withdraw your money, you will be taxed on the gains from your annuity.
Now I'm going to talk about two rules worth knowing; the rule of 72 and the rule of 108. You often hear about those rules but I've found that a lot of people don't quite understand these principles. The rule of 72 estimates how long it takes tax-deferred money to double at an anticipated growth rate. What does that mean? Well, let me give you an example. Let's say you earn 6% per year, so you take 72 divide that by 6 and you get 12 years. So that means with a tax deferred investment, like an annuity, in 12 years your money will double at 6%. The rule of 108 is the time it would take for a taxable investment to double. Let's say you have your money in a CD, mutual funds, or stocks and you're paying taxes on that money every year; using the same example of the growth rate being 6% per year. So 108 divided by 6 is 18 years. It would take 6 years longer for a taxable investment to double, showing the clear difference of the compounding, tax-deferred interest you only get with an annuity in a nutshell.
The power of tax-deferral is clear, but there is something else I want you to keep in mind. With higher interest rates, higher tax brackets, and longer maturities, the power of tax-deferral becomes even more apparent.
We represent over a dozen of the nation's top rated life insurance and annuity providers. We'll provide you with information and pricing on every service available at your location and let you choose. No more high-pressure, heavily biased sales pitches from pushy insurance salespeople.
Life's Protection
Bobby E Richardson
Phone: (386) 308-9626
Fax: (407) 210-1602
bobby.richardson@lifesprotection.com
http://www.lifesprotection.com
Article Source: http://EzineArticles.com/?expert=Bobby_E_Richardson
Article Source: http://EzineArticles.com/6179767
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