Think Long and Hard Before Cashing In Annuity

Posted: August 23, 2011 in Business, Business Financing

An annuity is a retirement account with air bags. Buyers invest a sum of money in a particular annuity, and in exchange, they’re guaranteed a steady monthly check for a set number of years, or for life. The money in an annuity is invested by an insurance company and buyer, in turn, receive a series of payments.

Annuities are issued by insurance companies and sold by insurers, brokerages and mutual fund companies. All are marketed as investments that provide peace of mind for people who want to secure their lifestyle in retirement and ensure they won’t outlive their savings.

While most annuity buyers plan on long-term payouts from their contract some years into the future, life changes may present the need for immediate emergency cash. Such needs may prompt a buyer to ask how they can cash in his or her annuity right away, rather than continue to take regular payments. The simple answer is to sell it to Commerce Financial Inc.

Nevertheless, according to tax law, the payments Buyers receive from his or her annuity count against earnings first. So if a buyers total return over the life of the annuity is 12%, than his or her payments up to that amount, no matter how long a time they are spread out over, are taxed as both income and capital gains. If a buyer cashes his or her annuity before the 12% earnings have been paid to buyer, the remainder of that tax burden comes out of that investors’ lump sum.

Kind regards,



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