An annuity date is the start date for periodic payments to an annuitant, which can be changed. Annuities are insurance products sold by insurance companies and offer tax advantages. An annuity can be annuitized, providing monthly payments for a specified period, and cannot be converted back into a lump sum. Most annuities are passed to beneficiaries without being annuitized.
An annuity date is the date specified in an annuity contract when periodic payments to the annuitant begin. The annuity date is specified at the time the annuity is purchased, but it is not a fixed date; In most cases, it can be easily changed. The process of turning an annuity into a guaranteed monthly income stream is called annuitization, an irrevocable event triggered by the achievement of the annuity date.
An annuity is a contract between the annuity owner and its issuer. In the United States, annuities are classified as insurance products and can only be sold by insurance companies. They are most often purchased by individuals as part of their retirement savings programs, but they are also popular with organizations when putting together structured payment programs, such as legal settlements, pension payments, and lottery winnings. An annuity that begins making monthly payments immediately after purchase is called an immediate annuity; your annuity date is usually within a few days of the purchase date, long enough to allow processing.
People who buy annuities generally select a deferred annuity, the annuity date of which is a number of years in the future. The money used to purchase the annuity is allowed to increase, either by a fixed rate announced annually by the insurance company, or by rates that reflect the performance of a market index, most commonly the Standard & Poor’s 500 (S&P 500). . These variable income indexed annuities, as well as fixed annuities, generally guarantee loss of principal against market loss, which is advantageous for investors. Another type of annuity, called a variable annuity, offers no protection against market loss and is a very risky investment for those nearing retirement age.
In addition to their security, fixed and variable-indexed annuities offer significant tax advantages to US buyers. Unlike other interest-bearing products, such as certificates of deposit (CDs) and savings accounts, interest earned on annuities is shielded from federal taxes until the owner withdraws it or pays it to an annuitant. Most annuities have a useful life of at least five years before the annuity date; its tax-preferred status means interest can grow faster than CDs offering the same interest rate. However, if a withdrawal must be made before the annuity date, a penalty is charged; the amount of the penalty decreases as the annuity ages.
When the annuity date is reached, an annuity automatically annuitizes. Once the issuing insurance company annuitizes an annuity, it will issue monthly payments to the beneficiary for a specified period of time, usually the life of the beneficiary. In some cases, annuity payments will continue after the beneficiary’s death to a designated beneficiary; These “fixed period” payment arrangements are designed to ensure that annuity payments are at least equal to the principal value.
Once annuitized, an annuity cannot be converted back into a lump sum of money, and the principal is no longer the annuity asset. Therefore, most insurance companies will contact a beneficiary prior to the annuity date, to ensure that the conversion is still consistent with the beneficiary’s wishes. If they don’t need the income the annuity would provide, beneficiaries often roll over their annuities. Most annuities are passed to the beneficiaries without being annuitized. When this happens, most annuities bypass the probate process and can be delivered to beneficiaries within the time it takes to validate a death certificate and process payment.
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