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Market Value Adjusted Annuity. This type of product combines two great advantages:
- The ability to choose and set the interest rate and time period for the annuity's growth term.
- The option to withdraw funds from the annuity prior to the end of the selected time period.
The flexibility for withdrawal is made possible by raising or lowering the annuity's value to reflect the interest rate's market change. This is calculated from the beginning of the chosen time period to the point when withdrawal is made.
In addition to being regulated by state insurance departments, variable annuities are regulated by the Securities and Exchange Commission. The money contributed toward a variable annuity is invested in a specific fund. This means that the amount of money paid to an individual in this type of annuity is determined by the fund's investment performance. Most of these annuities are designed to offer several alternatives to investors.
Other Types of Annuities
There are several other types of annuities. However, all of the following types of annuities can be obtained in the form of a fixed or variable product.
Fixed Period vs. Lifetime. Fixed period annuities pay for a specific time period. The amount paid depends on how much is contributed toward the annuity, an interest rate designated by the company and the length of the payout period. As their name indicates, lifetime annuities provide income for the rest of an individual's life. Payment amounts depend on age, interest and the amount paid into the annuity. A pure lifetime annuity features payments that stop after the annuitant dies, which may be a very short time after the purchase.
Qualified vs. Non-Qualified. Qualified annuities are used to invest and disburse funds into a tax-favored retirement plan. It's important to speak with an agent to learn what kinds of plans qualify and what kinds of plans have the most attractive tax benefits. Non-qualified annuities are purchased outside of a tax-favored retirement plan. In this type of annuity, earnings are tax-deferred until they're withdrawn.
Deferred vs. Immediate. Deferred annuities receive premium and investment changes for future payouts. Immediate annuities pay a specific amount of time after the product is bought. This time period depends on the frequency of income payments. It's important to know that the period may be very long. In some cases, these annuities are deferred for several decades.
Single Premium vs. Flexible Premium. Single premium annuities are funded by one payment. This amount can be invested to yield a long-term growth or on a short-term basis. These annuities are often funded by the money from appreciated asset sales. Flexible premium annuities are funded by a series of payments. Since they are designed to have a significant growth and investment before withdrawal, they're classified as deferred annuities.
* Liquidated earnings are subject to ordinary income tax, may be subject to surrender charges and, if taken prior to age 59 1/2, may be subject to a 10% federal income tax penalty. Guarantees and payment of lifetime income are contingent on the claims paying ability of the issuing insurance company.