Maximizing your return is the goal of any investment, and annuities are no different. Making the most of your annuity investment requires not only a strategy grounded in planning and knowledge, but selecting the right structure for your withdrawals is imperative to ensure you have the best possible results.
What are Annuity Withdrawals?
Annuity withdrawals are the distributions you take from your annuity account, a financial product that you purchase to get a steady income, either as a lump sum or a series of payments, and usually during retirement. The withdrawals you make can be tailored to suit your individual financial situation, balancing between immediate needs and future security. Yet, many are unaware of how to maximize this delicate balance, with the terms and conditions of annuity contracts often being intricate and challenging to decipher.
Read More: What is Annuity?
Setting the Stage for Maximum Benefits
Ensuring you are maximizing your return on your annuity investment is about more than just applying for an annuity.
- Start by determining your financial needs – working with a dedicated underwriting team to evaluate your financial objectives, current financial situation, and investment or savings horizons
- Understanding the options – from types of annuity to potential tax implications, it is important to make the right decisions based on knowledge and strategic planning
- Selecting an insurance company and annuity to apply for – choosing the right company can be daunting without the expertise and existing relationships to know which company will suit your needs best. You will also need to evaluate the benefits, limitations, and fees of your potential annuity, either on your own or with a dedicated agent
Tips and Best Practices
Here are 3 strategies you could use to see a maximum return on your annuity investment.
Starting Withdrawals Later
Delaying your annuity withdrawals can offer several benefits:
- Increased Income Potential: Starting later generally means that your investment has a longer time to grow, which can potentially lead to higher returns.
- Tax Benefits: By deferring withdrawals, you can enjoy tax benefits now, making your long-term retirement planning more efficient. important distinction in annuity taxation is whether the annuity is qualified or non-qualified. This refers to the money that was used to fund the annuity. Qualified annuities are those purchased with pre-tax dollars, often through an employer-sponsored retirement plan, like a 401(k). Taxes are deferred until you start taking withdrawals in retirement. A non-qualified annuity is funded with already-taxed dollars. Since you have already paid taxes on the money you invest, earnings grow tax-deferred until you withdraw them, and only the gains are subject to taxation.
Download our Annuities eBook to learn about the basics of annuities.
Mitigating Taxes
Understanding and utilizing tax codes to your benefit can be a complex yet rewarding strategy. Here is how you can go about it:
- Tax-Deferred Growth: By investing in a tax-deferring annuity, the money you have invested can grow without being subject to yearly taxes. You instead defer the taxes to a later date, typically when you begin making withdrawals, allowing the principal interest to grow and compound over time.
- Utilizing Tax Brackets Effectively: Let us help you strategize your withdrawals, whether that is making higher withdrawals when you have room to spare, or spreading a larger withdrawal out over several years to stay within favorable tax brackets, optimizing your after-tax income.
Utilizing Riders
Annuity contracts often come with various riders that can be leveraged to your advantage. Our team can guide you in making the most out of these options:
- Guaranteed Income Riders: Understand how to secure a steady income stream irrespective of market conditions, providing you with financial stability. This can help mitigate market risk, but does come with added fees and may lock you into a specific return, for better or worse.
- Death Benefit Riders: Our team can help you set up a death benefit rider, ensuring financial security for your loved ones in the event of your passing.
As you look to capitalize on your annuity investments remember that strategic withdrawals are a powerful tool in your financial toolbelt. If you are unsure about where to start or are looking to use some of the practices we’ve shared, reach out to our team to dive deeper and explore your options.
At Twin City Underwriters, we know that individualized attention to a client’s personal situation and needs are especially important, which is why we take the time to understand you and your financial goals. Contact us to schedule an appointment with one of our experienced insurance agents.
Are you ready to have a meaningful discussion about your financial needs? Call or email TCU today to set up a free, no-obligation appointment with one of our dedicated agents.
Call Twin City Underwriters to learn more: 651-488-0172 or 800-507-6778.