Annuity Payments

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Payments made from an annuity. These payments may or may not be tax advantaged, depending on the type of annuity.

There are generally 6 different payment options you may receive from an insurance company, plus a death benefit option:

Death benefit: When the annuitant dies, the insurer will pay the named beneficiaries the death benefit, if any, of the annuity. Death benefits are typically only available with deferred annuities.

Life-only payment: Annuitant receives the same guaranteed income payments for as long as they live, regardless of whether the money in the annuity would have been depleted.

Life with period certain: The annuitant receives a guaranteed income payment for life. When the annuitant dies, a named beneficiary receives the same income payment for a specified number of years.

Lump sum payout: The annuitant may defer the income payment into the future, and elect a lump sum payout at a specified future date.

Joint and survivor: The annuitant and spouse receive guaranteed income payments as long as one of the spouses is still living.

Period certain: Guaranteed income payments are made to the annuitant for a specified number of years. After that, no further income payments are made, regardless of how long the annuitant lives.

Periodic withdrawal: The annuitant selects an amount of non-guaranteed income they want to receive on a periodic basis. These irregular withdrawals can continue for as long as there is money in the annuity to withdrawal.

Systematic withdrawal: The annuitant selects a regular, systematic, payment amount as a withdrawal instead of annuitization. The income is non-guaranteed and continues until the annuitant wants to stop withdrawing money or until there is no more money left in the annuity. The insurance company does not guarantee the annuitant will not outlive their income payments.

For immediate annuities, payments generally include an exclusion ratio for tax purposes. For periodic or systematic withdrawals from a deferred annuity, all income payments are taxed effectively as ordinary income.

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