Page 6 - WL-Winter-Magazine-2023

It’s About FINANCIAL SECURITY

FREQUENTLY ASKED

QUESTIONS ABOUT

DEFERRED ANNUITIES

A with a traditional IRA endorsement. This arrangement
deferred annuity is a long-term
One example of a qualified annuity is an annuity
contract between you and an
is commonly used when rolling over balances from a
insurance company ultimately
A non-qualified annuity is purchased with money
designed to provide you with a steady 401(k) or other IRS-qualified funds.
that has already been taxed (after-tax dollars). It also
stream of guaranteed income at a grows on a tax-deferred basis. When distributions are
made from a non-qualified annuity, only the interest
future date. earnings are reported as taxable. The after-tax contribu-
tions are not taxed again.
Deferred annuities have two phases: the accu- Another option is an annuity with a Roth IRA en-
mulation phase and the payout phase. During the dorsement which is a special type of tax-advantaged
accumulation phase, your premium payments and individual retirement account. Like a non-qualified an-
the interest credited to your annuity grow on a tax-de- nuity, a Roth IRA is funded with after-tax dollars. When
ferred basis, typically over several years. the account has been open for at least five years and
The payout phase (annuitization) is when you other IRS requirements, such as reaching age 59½,
begin to receive money from your annuity. When are met, your contributions and earnings can be with-
you annuitize, the account value is converted into a drawn tax-free.
reliable, guaranteed income stream. Like a personal
pension plan, your annuity can provide you with reg- Q: What is thE agE rEQuirEmEnt for starting
ular payments, typically received monthly. During the an annuity?
annuitization process, you can choose to receive this A: Woman’s Life does not have a minimum age
income for the rest of your life or for a selected num- restriction for any of our annuities. However, for a
ber of years. traditional IRA or a Roth IRA annuity, an annuitant
Many insurance providers offer annuities and there must have earned income from active employment to
are different variations available. The following in- meet IRS requirements. The maximum age to start an
formation is about deferred annuities available from annuity with Woman’s Life is 85.
Woman’s Life Insurance Society. It’s always best to
talk with a licensed insurance professional when con- Q: hoW do i fund my annuity?
sidering which annuity may be right for you. A: There are several ways you can fund an
annuity. Premiums can be paid in a single lump
Q: What’s thE diffErEncE BEtWEEn a QualifiEd sum, or in a series of periodic payments spread over
annuity and a non-QualifiEd annuity? time. Periodic payments can be scheduled and even
A: The key difference is when the funds used to pur- made by establishing automatic bank drafts (ABDs).
chase the annuity are taxed. You can make a drop-in payment whenever you have
A qualified annuity is purchased (funded) with pre- funds you’d like to add (when you get a bonus for
tax dollars. The funds grow on a tax-deferred basis, example).
and no tax is due on the contributions or the inter- You can also move funds from other sources such
est earnings until they are distributed. Because the as a 401(k) into your annuity. Another common ac-
contributions were not taxed previously, distributions tion some people take is to move a maturing CD into
including contributions and earnings are taxed as or- an annuity to take advantage of the tax deferral as-
dinary income. pect of annuities.

4 WOMANSLIFE.ORG WINTER 2023