Tips for Managing Your Annuity Income

Tips for Managing Your Annuity Income

Many retirement planners find that utilizing annuities may be a good way to generate guaranteed income. Annuities allow you to set retirement distributions based on their type and how much you contributed.

Like all investment and insurance products, annuities are subject to fees and expenses. Generally, you will have to pay fees on distributions. Using fixed index annuities as an example, here are two fees to consider:

• Surrender charge: If you collect income before the designated distribution date, you’ll have to pay a surrender fee. While charges may vary by provider and type of annuity, you should expect to pay around 10% of your total contract price for the first year. Surrender fees may drop by around 1% each year.[i]
• Administrative fees: Annuity managers typically charge fees to cover the administrative costs of managing your accounts. Fees will vary by firm.[ii]Purchasing certain annuities allows you to defer paying taxes on your investments. This applies to annuities that are held in traditional IRAs, 401(k)s or other qualified retirement accounts. However, once you start receiving annuity income from a tax-deferred source, you should be mindful of the following:[iii]

Remember to Prepare for Taxes

• Ordinary income tax: You will have to pay ordinary income taxes when you collect annuity income. Taxes may vary depending on if you receive a lump sum or ongoing payments.[iv]
• Early-withdrawal tax: You may incur a 10% tax penalty if you withdraw money early, prior to age 59½, from your annuity fund.[v]

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Investment advisory services are offered through CapSouth Partners, Inc., dba CapSouth Wealth Management, an independent registered Investment Advisory firm. Information provided by sources deemed to be reliable. CapSouth does not guarantee the accuracy or completeness of the information. This material has been prepared for planning purposes only and is not intended as specific tax or legal advice. Tax and legal laws are often complex and frequently change. Please consult your tax or legal advisor to discuss your specific situation before making any decisions that may have tax or legal consequences.

You may also have to address other tax issues, so researching tax rules or consulting with a tax professional is important. Taxes and fees depend on the type of annuity you bought and how much you contributed to it. If you would like to discuss your options and potential financial and tax obligations, we’re here to help.

[i] http://www.investopedia.com/terms/s/surrenderfee.asp?lgl=myfinance-layout

[ii] https://www.fidelity.com/viewpoints/retirement/shoppers-guide-to-annuity-fees

[iii] https://www.annuity.org/annuities/taxation/

[iv] http://www.investopedia.com/exam-guide/series-26/variable-contracts/annuity-distributions-charges.asp

[v] https://www.irs.gov/newsroom/early-withdrawals-from-retirement-plans