An annuity is a contract between an investor and an insurance company. The investor makes a payment or series of payments to the insurer, and the insurer guarantees specified distributions to the insured.

In addition to the issuer, three other participants may be involved in an annuity contract. The owner purchases the annuity, pays the premiums, names the contract’s beneficiary, and has all the rights to the contract. The annuitant is the person whose age and life expectancy are used to determine the annuity’s benefits and who receives the annuity payments. The beneficiary receives the death benefit, if any, upon death of the annuitant or owner.

Annuities are generally designed as retirement vehicles which can provide tax deferral. Withdrawals of taxable amounts are subject to income tax, and if taken prior to age 59½, a 10% federal penalty tax may apply. Early withdrawals may be subject to withdrawal charges. There are no requirements to take required minimum distributions (RMDs) at age 70 1/2. There are no restrictions on the amount of money that can be placed in an annuity. Distributions above contributions made are taxed at current income tax rates.

Many types of annuity contracts exist, they include: fixed annuities, fixed indexed annuities, structured annuities and variable annuities, each with a variety of available benefit options.

SOUND Wealth Management Group can help you determine whether an annuity is appropriate for you, decipher the differences between the available offerings, ensure you understand any contract you are considering, and implement the selection if appropriate.