The ABCs of Annuities

By Dianna Doreen
Senior Writer, mPower

Coming to Terms

Accumulation period: During this period, all premium payments are invested in the account.

Annuity: A contract with an insurance company for a guaranteed, interest-bearing policy.

Death benefit: Proceeds from your annuity pass directly to your named beneficiary, if applicable.

Penalty tax: The IRS penalty tax is currently 10%, payable on any withdrawal of interest or qualified premium made prior to age 59½.

Premium: The original, or principal, contribution made to the annuity.

State premium tax: Tax imposed on the accumulated annuity value or purchase payments.

Systematic withdrawal plan: Authorizes periodic, structured withdrawals by the owner.

Tax deferred: Postponing taxes on interest earnings.

Withdrawals: During the distribution period, all funds can be withdrawn from the account, by option of the owner, and usually with a minimum dollar amount.

The information provided here is intended to help you understand the general issue and does not constitute any tax, investment or legal advice. Consult your financial, tax or legal advisor regarding your own unique situation and your company's benefits representative for rules specific to your plan.

The ABCs of Annuities

By Dianna Doreen
Senior Writer, mPower

Coming to Terms

Accumulation period: During this period, all premium payments are invested in the account.

Annuity: A contract with an insurance company for a guaranteed, interest-bearing policy.

Death benefit: Proceeds from your annuity pass directly to your named beneficiary, if applicable.

Penalty tax: The IRS penalty tax is currently 10%, payable on any withdrawal of interest or qualified premium made prior to age 59½.

Premium: The original, or principal, contribution made to the annuity.

State premium tax: Tax imposed on the accumulated annuity value or purchase payments.

Systematic withdrawal plan: Authorizes periodic, structured withdrawals by the owner.

Tax deferred: Postponing taxes on interest earnings.

Withdrawals: During the distribution period, all funds can be withdrawn from the account, by option of the owner, and usually with a minimum dollar amount.

The information provided here is intended to help you understand the general issue and does not constitute any tax, investment or legal advice. Consult your financial, tax or legal advisor regarding your own unique situation and your company's benefits representative for rules specific to your plan.