Education Update: Tips for Managing Your Annuity Income

July 12, 2018

Many retirement planners find that utilizing annuities may be a good way to generate guaranteed income. Annuities allow you to set retirement distributions based on their type and how much you contributed.

Like all investment and insurance products, annuities are subject to fees and expenses. Generally, you will have to pay fees on distributions. Using fixed index annuities as an example, here are two fees to consider:

  • Surrender charge: If you collect income before the designated distribution date, you'll have to pay a surrender fee. While charges may vary by provider and type of annuity, you should expect to pay around 10% of your total contract price for the first year. Surrender fees may drop by around 1% each year.[i]
  • Administrative fees: Annuity managers typically charge fees for managing your accounts. These fees typically cover administrative costs to cover expenses. Fees may vary by firm.[ii]

Remember to Prepare for Taxes

Purchasing certain annuities allows you to defer paying taxes on your investments. This applies to annuities that are in traditional IRAs, 401(k)s or other qualified retirement accounts. However, once you start receiving annuity income from a tax-deferred source, you should be mindful of the following:[iii] 

  • Ordinary income tax: You will have to pay ordinary income taxes when you collect annuity income. Taxes may vary depending on if you receive a lump sum or ongoing payments.[iv]
  • Early-withdrawal tax: You may incur a 10% tax penalty if you withdraw money early from your annuity fund. Withdrawals from qualified annuity funds are considered part of retirement accounts if they are made before the age of 59½.[v]

You may also have to address other tax issues, so researching tax rules or consulting with a tax professional is important. Taxes and fees depend on the type of annuity you bought and how much you contributed to it. If you would like to discuss your options and potential financial and tax obligations, we're here to help.

Guarantees are based on the claims paying ability of the issuing company.

An annuity is a long-term financial product designed largely for asset accumulation and retirement needs. Withdrawals and death benefits are subject to income tax. If withdrawals and other distributions are received prior to age 59 ½, a 10% penalty may apply. Certain Annuity product features, offered by some Fixed Annuity companies, such as stepped-up death benefit, a bonus credit and a guaranteed minimum income benefit, carry added fees.

These are the views of Platinum Advisor Strategies, LLC, and not necessarily those of the named representative, broker dealer or investment advisor, and should not be construed as investment advice. Neither the named representative nor the named broker dealer or investment advisor gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. Please consult your financial advisor for further information.

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