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Are Annuities Better Than C D's

 

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CD             

  1. Guaranteed by FDIC up to $100,000
  2. Fixed rate of return
  3. Surrender penalties apply 
  4. Earnings are fully taxable as earned
  5. Not protected from creditors
  6. Includable in your probate estate at death

 

 

Annuity            

  1. Most states guarantee the 1st $100,000
  2. Fixed rate or Stock Market Indexed
  3. Surrender penalties apply
  4. Earnings are tax deferred
  5. The "Exclusion Ratio" can save money on
    both Income Taxes and Soc. Sec. payments.
  6. Can guarantee a lifetime of income
  7. Can pay to an heir without probate
  8. Is exempt from Creditors in most states.
  9. You can access up to 86% penalty free
 

Guarantees

Annuities guarantee an income that you will never outlive
Unlike a certificate of deposit.  How secure are annuities at  insurance companies?   CD's are insured by the Federal Government up to $100,000.   The State of Louisiana insures annuities up to $100,000 per person in the event of a carrier failure.  States vary in the amount that they guarantee, see your State Dept. of Insurance for details and amounts.
(State Guarantee Funds)

            Annuities have considerably more attractive liquidity features than any CD.
      Besides being safe, annuities work twice as hard.   You earn interest on your money
      and you earn interest on your interest up to the time you call for your money.

Liquidity

     Most CDs give you five to seven days at maturity to withdraw or roll the assets over without penalty. 
If you fail to withdraw your money during the prescribed time, the bank automatically rewrites the CD and in most cases you start another penalty period all over again, sometimes at a lower interest rate.

Tax Advantages

            Tax-deferred income doesn’t count toward the IRS’ provisional (retirement) income levels. Simply having tax-deferred income coming in after 65 can save money on taxes.  While pension income, interest, tax-exempt income and 50 percent of Social Security benefits count toward provisional income, tax deferred income does not.

 If your provisional income (married, joint filing status) is:

•   $0-$32,000 you pay no Social Security tax.      
           
•   $32,000-$44,000 you may be taxed on up to 50 percent.
             •   Above $44,000 you may be taxed on up to 85 percent.     

       In other words, if you receive $24,000 a year from Social Security and have  $15,000 of CD interest income, you are going to give up a healthy portion of that to taxation.   Move those CD assets into a deferred annuity and the tax goes away.

Superior Returns

      While the interest rate on a fixed annuity is nominally higher than a CD, it’s the triple compounding features that makes a fixed annuity shine.  Specifically, an annuity owner earns interest on his principal the first year.  In the second year, since a tax-deferred annuity doesn’t pay taxes annually,  the owner earns interest on the principal, earns interest on the interest he earned the first year plus the money he would have had to pay in taxes the first year.  From there, the compounding takes off.

Bonuses

          Annuity bonus features add dramatically to the yield, leaving CDs far behind. 
 
     
CD's do not offer cash bonuses like annuities do.  When’s the last time you went to the bank
       with $100,000 and was immediately credited for $10,000? 

 Safety

The safety features of fixed annuities is that in most states , the state guarantee fund insures them to some limit. ($100,000 in Louisiana) (State Guarantee Funds)

Probate

      Normally, annuities avoid probate if the beneficiaries are set up properly.

Exclusion Ratio

        Annuities taken as an annual or monthly income are favored by a return of principal exclusion called the "exclusion ratio" which can shield up to 85% of your income from taxation.

 Functionality

      Because of the competitive insurance environment, most annuities come equipped with several options and additional choices at time of purchase, including, but not limited to:

          Transfer of ownership between spouses.                                              

          Nursing care waiver rider which increases the penalty-free with­drawal an
          additional 10 percent of certificate cash value per year. (Certain restrictions apply.)

          Terminal illness waiver allows the owner to withdraw up to 75 per­cent of 
          accumulation value without incurring a surrender charge, if diagnosed with a
          terminal illness and is expected to live less than one year.

          Unlimited contributions. Unlike CDs you can add to your annuity at any time.

          All benefits are guaranteed available to age 100 (95 in some cases).             

          Full or partial tax-free transfer privileges to another annuity.                           

          A free cancellation period — AKA a “free look” period — allows you to change
             your mind and cancel the policy within a specified time period without any 
          charges or penalties.

          Guaranteed convertible to a monthly income stream for life or period certain.

          The entire accumulation value of an annuity can be available upon  death.

 Exchangeable

        Current law does not allow for CDs to transfer to other CDs without penalty. Under IRS Reg. 1035, deferred annuities are exchangeable to other deferred annuities or to other immediate annuities. Tax deferral (interest/earning accumulations) and other tax benefits are exchanged. This means the annuity contract basis (non-qualified contracts)  gets transferred to the new deferred or immediate annuity contract.  

Creditor protection

     Annuities can be creditor exempt.  Buy them early and often, so there is never any doubt as to the intent of the transaction. Like all other matters of insurance, you need to have the policy in place before you need the benefits, otherwise, you might find out that you are just too late.

     CD assets are not protected from creditors — and banks often suggest that couples hold CDs in joint tenancy, resulting in another vulnerable asset in case of lawsuit, divorce, etc. — annuities do offer some protection from creditors.

      Ira/Sep plans are generally exempt from creditors, as is most cash values in Life Insurance Policies.

 

 

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