How to Set Up a Deferred Annuity

An annuity is a great tool to help you plan for your future. Whether you set up one through your job (a qualified annuity) or on your own (a non-qualified annuity), you can enjoy tax-deferred earnings until you withdraw the money. A deferred annuity is one for which the annuitant chooses to receive payment at a particular time.

Difficulty: Easy

Instructions

Set up a Deferred Annuity

1. Choose a variable annuity if you don't mind the risks of your savings being tied to the financial markets. If the market soars, so do your earnings. Likewise, if the market plummets, your earnings will decrease as well.

2. Pick a fixed annuity if you want the security of a guaranteed rate of interest for a specific amount of time. This may be a better choice for older individuals who are normally more careful with investments.

3. Start your annuity with a lump-sum contribution, or begin with a small amount and add funds later.

4. Fill out the applicable paperwork with a reputable agent. It is extremely important that everything is done properly to ensure your benefits will be paid properly when you retire.

5. Make sufficient contributions during the accumulation phase (period when you are paying in premiums) to ensure you will have enough to meet your needs at retirement.

6. Decide how you want your deferred annuity paid out at the time you set it up. You can have regularly scheduled withdrawals or decide to only take money out when needed.

7. Decide how long you want to receive payments. You can choose to be paid out over the course of your life, or you may designate a number of years.

8. Make sure that your money will not revert to the insurance company at the time of your death. Select a beneficiary who will collect a death benefit that consists of all the remaining principle you have paid into your annuity.

Tips & Warnings

• When you set up a qualified, deferred annuity, make pretax contributions and receive an even greater benefit.
• Although insurance companies are heavily regulated by the government, they are still susceptible to financial upheavals. Consider an annuity like any other investment instrument and recognize the potential risk of losing some or all of your money.
• Don't forget the golden number: 59 1/2. That is the age you must reach before you can begin withdrawing money from your annuity without a 10-percent tax penalty. There are some instances for which this does not apply, such as if the annuitant is suffering from a serious illness. Speak to your insurance representative for the particulars.