Split annuity
Split annuity is one of those annuity options,
which provides you with a steady source of income after retirement. This and,
you still have the opportunity to get back your principal amount. So, for
those who wish to do both, a Split annuity
could be the right move . Is a Split annuity really split No. This term refers to two different types
of annuities that work in conjunction. What is the factor that makes this
type of annuity so compelling Well, the answer lies in how well the different
annuities involved, complement one another.
THE WORKING OF A Split annuity
Initially you make a single contribution. A part of it goes into single premium immediate annuity and the other into a single premium deferred annuity.
With the immediate annuity, you get paid every month . It simply means that you get a stream of income every month until a fixed time. Meanwhile the deferred annuity is left alone . It grows steadily at a fixed rate of income . If your Split annuity has the right structure, the immediate annuity would have completed its stream of payment and in the meantime, the deferred annuity would have earned you enough.
A Split annuity is thought to be very tax efficient . It is a very intelligent vehicle where both single premium deferred annuity and the immediate annuity is made use of.
There are limits placed on the Split annuity. These limits are related to the issuing ages of the annuity policies that you purchase. The limits are 0-85 in case of non-qualified funds, i.e. if you have taxes paid on them, and 0-70 for qualified money, i.e. if you have not paid taxes on them.
Your immediate income period is variable. It can range from anywhere between 3-20 and depends on the following : the principal amount, the insurance carrier, the prevailing rate of interest and finally the objective of your Split annuity. So, the crux of Split annuity is that initially, an individual makes his payment.
He then receives income on it for a set period of time . Meanwhile, the
deferred annuity contributions are made towards the accumulation phase. As
this reaches the distribution phase it is time to pay you back. Your contract
holder then decides on how to pay you . If it is principal preservation that
you are looking for then, the Split annuity is a good option for you . With
Split annuity, your principal does not vanish but is still there . Exposing
your principal assets to the rough and fluctuating markets can be extremely
risky for you. This is especially true if you are a retiree, or have dependents,
or have to support the medical expense of a loved one etc.
Now, that we have discussed so much about immediate annuities and deferred
annuities here is a little something on both the types .
THE SINGLE PREMIUM IMMEDIATE ANNUITY
One of the annuities that go into the making of your Split annuity would be the single premium immediate annuity (SPIAs). These are those annuities that start giving you the monthly payments right after the date you make your contribution . The company promises to pay you the monthly income while you on the other hand will have to give up your rights on the huge deposit amount. You can get your immediate annuity from various sources such as a maturing Certificate of Deposit (CD) a profit-sharing plan, an IRA account etc.
IMMEDIATE ANNUITY ADVANTAGES
Financial Security: You get a stable income that lasts for
a lifetime. You could receive a payment for a specific period of time or arrange
to get in such a way that you do not outlive your income .
Simple and easy to manage: You dont have to make reports or watch the market
or worry about your dividends.
Returns are greater: The returns on your immediate annuity are usually greater than CD, etc. Tax treatment is based on your preference: You could delay paying taxes on your earnings if you have a Tax deferred annuity along with an immediate annuity.
Your principal is safe: Regardless of the financial market scenario, your funds are safe . And finally you are also not pressed any sales or financial taxes.
TAX DEFERRED FIXED ANNUITY
With a Tax deferred annuity the insurance company credits your interest. However
you do not pay taxes on the earnings until you withdraw your amount or in
another scenario. More money is accumulated in a shorter time span with greater
income.
ADVANTAGES OF A TAX DEFERRED ANNUITY
You money compounds faster. In case you opt for a monthly income you will
have less tax to deal with, as they will be spread over a period of time or
a period of years.
Split annuity-STRUCTURED SETTELEMENT
INCOME - TAX FREE AND DEPENDABLE
Based on your needs and necessities, your fixed period structured settlement annuity can offer you a payment stream for even 40 years and also all your life based on how you chose and structure it . The payments that you receive can be in various modes: weekly, bi-weekly, monthly, quarterly, semi-annual, and annual . You can have your payments deposited electronically or also directly into your savings account for immediate use. Regardless of the scenario in the financial market you are assured of your returns in this case .
GROWTH OF YOUR PRINCIPAL
A tax-free growth of the principal and its preservation is seen with split annuities. Deferred Lump Sum structured settlement annuities provide a tax-free growth. This plus, it also helps you get an internal rate of returns usually greater than the other financial vehicles like the government bonds, zero coupon bonds, municipal bonds etc . By using immediate and tax-deferred annuity, you can actually work out a very effective income scheme for your retirement. A Split annuity can offer you a steady income for the present and also get you a good financial gain in the times ahead. Always call up a professional to get all the details and make sure you know the latest in the market.
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