Frequently used terms
The period of time between when the annuity is issued and when the insurance company begins to make income payments to the annuitant. Interest earned or investment results experienced on the accumulated payments during this time are added to the account tax-deferred under current tax laws.
Annuitization involves converting your accumulated retirement assets into a series of periodic payments that last for a period of time of your choosing, in accordance with the provisions of the annuity contract.
Type of annuity that can be funded through a single premium or through flexible payments over time. Can potentially help you to accumulate money for retirement, especially over an extended period of time. Your money grows tax deferred, which means you pay no taxes on earnings until you withdraw your money.
The period of time, either a specified number of years or lifetime, over which distribution payments are made to the annuitant. Earnings become taxable when the annuitant begins to receive payments. The payout during the distribution period can either be fixed or variable.
Type of annuity that guarantees you a specified rate of interest for a specified amount of time. Offers preservation of your assets and protection from market volatility.
Flexible premium annuities
Type of annuity that is funded over a period of time, generally years. Allows you to pay premiums of differing amounts (within a stated minimum and maximum) on a set schedule or randomly. Your assets accumulate on a tax-deferred basis and can fund either fixed or variable deferred annuities.
Type of annuity that insurance company immediately begins payments for life or for a specified amount of time in exchange for your one-time contribution. Regular payments can be received on a monthly, quarterly, semiannual or annual basis. A portion of each payment represents taxable interest, and the other portion is a tax-free return of your principal.
Premature/early withdrawals (distributions)
Withdrawals are reported as income and are subject to ordinary income tax treatment (as opposed to capital gains or dividend income), and if made prior to age 59½, may be subject to an additional 10% federal income tax penalty. In addition, company imposed surrender charges may apply to certain withdrawals.
Single premium annuities
Type of annuity that can provide you with a way to turn a large sum of cash into guaranteed income. Those who have cash from an inheritance, legal settlement, business sale, etc., can consider funding an immediate or a deferred annuity. Those nearing retirement, who have assets accumulated in a retirement plan or other savings vehicle, can consider funding an immediate or a deferred annuity.
Termination of the contract by the owner. Most annuity contracts impose surrender charges during the early years of the contract, and each subsequent contribution may have its own surrender charge period. All accumulated interest will usually be taxable to the owner at time of surrender, and tax penalties (10%) will apply if the owner is not yet 59½ years of age (unless an IRS exception applies).
With this payout strategy, you can withdraw money from the accumulated value of your contract on a regular schedule – making it an effective way to supplement income either before or after retirement. Systematic withdrawals are also flexible.
Type of annuity that provides you with a greater opportunity for asset growth through a variety of investment choices. With their greater opportunity for growth, comes greater risk. Variable annuities are subject to market risk, including loss of principal.
Most annuities will allow a certain percentage of the account value to be withdrawn free of charge in each of the initial contract years. Beyond this “free corridor,” a withdrawal charge, expressed as a percentage of the amount withdrawn, is assessed for a specified number of years after the issue of a deferred annuity or after the date of a subsequent contribution. The charge typically decreases annually until the year specified in the contract, when it reaches zero, and all future withdrawals are without charge.
Please consider the charges, risks, expenses and investment objectives carefully before purchasing a variable annuity. For a prospectus containing this and other information, please contact a financial professional. Read them carefully before you invest or send money.
IMPORTANT NOTE: Equitable believes that education is a key step toward addressing your financial goals, and we've designed this annuity glossary to serve simply as an informational and educational resource. This discussion does not offer or constitute investment advice and makes no direct or indirect recommendation of any particular product or of the appropriateness of any particular investment-related option. Your needs, goals, and circumstances are unique, and they require the individualized attention of your financial professional.
There are contract limitations and fees and charges associated with annuities which include, but are not limited to, mortality and expense risk charges, sales and withdrawal charges, administrative fees, and charges for optional benefits. Annuities contain certain restrictions and limitations. For costs and complete details, contact a financial professional.
Equitable Financial Life Insurance Company (New York, NY) issues life insurance and annuity products. Securities offered through Equitable Advisors, LLC, member FINRA, SIPC (Equitable Financial Advisors in MI & TN). Equitable Financial Life Insurance Company and Equitable Advisors are affiliated and do not provide tax or legal advice.