Buying An Annuity

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Before purchasing an annuity, look for a reputable, financially sound insurance company. Annuity fees, quality and security can vary widely from one company to another. Remember the following:

• Annuities are not backed by the federal government.



• Your annuity contract is only as strong as the insurance company’s financial position.



• Most states have guaranty associations that may preserve some portion of your money if an insurer becomes unable to meet its obligations. However, guaranty associations limit the amounts guaranteed.



• It may be wise to consult a tax accountant or financial planning professional who can help you select the best annuity for your personal, present and future needs.

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• Is the company licensed in your state?
• Does the company have a reputation for excellent customer service?
• Is the company highly rated by independent rating agencies?

Look for a company with consistently good ratings across multiple agencies. Although a company's financial strength may not affect a variable annuity's performance, it could affect the company's ability to meet the terms of your contract.

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• Examine applicable expenses and surrender charges.
• If considering a deferred fixed annuity, examine the history of the interest rates the company has paid over time.
• If considering a variable annuity, examine the fund managers’ track record and the funds’ performance history.

Comparing Annuity Contracts

Special Needs Or Goals? Examine Alternative Types Of Annuities

• A charitable gift annuity is a contract between you and a charitable organization. You agree to make a gift to the charity and in return, the charity agrees to make income payments to you for the rest of your life. The charity may choose to buy an income annuity from a life insurance company to fulfill the obligation, or it may take on the responsibility directly.



• Medicaid annuities are one of the options individuals have used to ensure they have money set aside to cover health care costs and that they also receive the maximum benefits allowable under their state's Medicaid law. Because available options on Medicaid annuities vary by state, you should consult your financial planning professional for advice and guidance about the choices available to you.



• A split annuity option puts two different annuity products to work for you — an immediate annuity to provide monthly income and a deferred annuity that is intended to increase in value. Once the value of the immediate annuity is depleted, you may begin withdrawals from the deferred annuity.



• A tax-sheltered annuity (TSA) is also known as a 403(b) Plan. Certain employees of public educational institutions and tax-exempt organizations may be able to contribute to a 403(b) plan, if one is offered by the employer. With a 403(b) plan, you may make pretax contributions to your retirement account; which will reduce your income for federal income tax purposes; and have your earnings grow tax deferred.

A Final Reminder About Taxes

• If you want to transfer an annuity to another individual, ask about gift and federal income tax consequences.



• If you are buying an annuity for a trust, corporation or partnership, be familiar with the tax effect of Internal Revenue Code Section 72(u).



• If you want to buy more than one annuity, ask about "aggregation."



• If you want to move money from one annuity to another, consider a Section 1035 Exchange to protect your money from the loss of certain federal income tax advantages.



• Federal income tax may be due on the growth and possibly on the contributions. Consider seeking the advice of a tax professional.

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