How Much Do You Have to Put in an Annuity?
Annuities are tax-favored investment structures sold by insurance companies to consumers. An annuity is either a qualified IRA or a nonqualified annuity. While there are limits set by the Internal Revenue Service for qualified plan contributions, there are no limits to the amount allowed in nonqualified plans. The minimum requirements are set by each insurance company.
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Maximum IRA Contributions
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The 2011 IRA contribution limit is $5,000. IRA owners at least 50 years of age can make $6,000 with $1,000 as a catch-up contribution. There are no requirements where the IRA owner chooses to invest IRA funds, though the $5,000 to $6,000 annual contribution is the most that would be allowed in an annuity.
Minimum Contributions
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Each insurance company determines its own minimum standards for annuity investments. The standards are established based on what the insurance company feels is a profitable base. Some annuity companies have a minimum investment of $25,000 unless the annuity is a qualified IRA plan. Other annuities have minimum investments of $1,500. Yet others allow smaller investments with automatic contributions into the account.
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Shop Around
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There are two basic deferred annuity investments, a fixed annuity and a variable annuity. The fixed annuity provides conservative fixed-income returns on contributions. The variable annuity uses mutual funds under the deferred tax structure. A hybrid of the two is an index annuity that offers a guaranteed return if the market index is down but provides a higher return based on increased index years. It would be nice if insurance companies made a standard minimum for all annuities, but each is different with varying terms and conditions to boot. Shop around for one that meets your needs.
Create a Savings Plan
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If you don't have enough for a minimum annuity contribution, set a monthly contribution plan into a savings account at a local bank. Savings accounts are liquid and provide a modest interest rate on funds. Once you have the minimum, you have no penalty to take the money and invest it into an annuity.
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