Annuities
Creating Lifetime Income For Business Owners
Small Business owners understand that it is important to plan for the future; however, 90-95% of small business owners have a retirement that is underfunded or not funded. Using certain tax-sheltered retirement plans and annuities can help. There are tools and strategies available to you that will ensure that you put the maximum amount of every dollar you earn in your own pocket! Furthermore, annuities allow us to create a constant, guaranteed stream of income for the duration of your life, no matter how long you live!
What Is An Annuity?
An annuity is a contractual agreement between you and an insurance company. In exchange for a series of payments or a single payment, the insurer will guarantee to pay a stream of payments to you in the future. In some contracts, this stream is guaranteed over a specific time period and in others it is guaranteed for life, no matter how long you live. Many annuity contracts include benefits for the loved ones you leave behind after you pass on.
How Can Annuities Help Me and My Business?
The main use of annuities is to fund your retirement. Most annuities have two phases: accumulation and income. During the accumulation phase you can make contributions to your account; many annuities will allow this principle to grow over time. Once you retire and reach the income phase, the annuity is annuitized and begins making guaranteed payments to you. The duration of these payments is stipulated in the contract when you buy it.
Annuities can also be offered to your employees on a contribution basis. Unlike many traditional retirement plans, Annuities do not have to be offered to all of your employees. You can use annuities to improve the benefits packages of your most skilled employees and increase your company’s retention. Here are some examples of plans that can be used to benefit your employees:
- Simplified Employee Pension Plan (SEP-IRA): This is an agreement that allows you to make a contribution to the individual retirement accounts of your employees. In a SEP-IRA, the frequency and amount of the contributions are at the discretion of the employer. The benefit of using an annuity to fund a SEP-IRA is that it may include benefits such as life time income and/or death benefits.
- Savings Incentive Match Plan (SIMPLE-IRA): This is a salary reduction arrangement, like a 401k, that helps employees contribute to their own individual retirement account. As the employer, you can match these contributions. Annuities can be used to fund this arrangement.
What Are the Different Kinds of Annuities?
There are lots of annuities available to you; however, there are three main distinctions to make, below is an overview:
Annuity Type |
Benefits |
| Fixed Annuities |
|
| Fixed Indexed Annuities |
|
Additional Resources
1. Which Crediting Method is Right For You
2. A More Detailed Explanation of Indexed Annuities
What is the next step?
An annuity is an excellent tool; however, there are a multitude of options available to you and it is important that you identify the product that is right for you. At Red Rock Financial Group, we are happy to guide you through this critical decision. Speak with one of our professional agents by clicking HERE.
Annuities are not appropriate for everyone. There are fees and charges associated with owning an annuity. Annuities do not provide any additional tax advantage when used to fund a qualified plan such as an IRA.
This information is not written or intended as tax or legal advice and may not be relied on for purposes of avoiding any federal tax penalties. Red Rock Financial Group, its employees and representatives are not authorized to give tax or legal advice. Individuals are encouraged to seek advice from their own tax or legal counsel.
