Annuity Plan Questions

What is a deferred annuity?

Who are the parties to an annuity?

What are the advantages of owning a deferred annuity?

What's the difference between an annuity, a 401k plan and an IRA?

Are there times when I should not consider buying a deferred annuity?

What choices do I have for withdrawing money from a deferred annuity?

Are there any charges or penalties if I withdraw money from a deferred annuity?

Are there circumstances where funds may be withdrawn charge-free?

Where do I mail a payment for my existing annuity?

How do I make a change to my annuity? (e.g., change of beneficiary or address)

How can I withdraw funds from my annuity?

What is a beneficiary?

May I have multiple beneficiaries?

What's the difference between a Primary and Secondary Beneficiary?

Who can change the beneficiary?

Annuity 1099 Tax FAQ

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Q. What is a deferred annuity?

A. A deferred annuity is a contract issued by an insurance company that allows you to accumulate money on a tax deferred basis for long term goals like retirement. Unlike an IRA or company sponsored plan, there are virtually no limits on contributions to a deferred annuity.

There are two phases to a deferred annuity. The first is the "accumulation phase" during which your assets grow tax deferred. If you withdraw money from your annuity during the "accumulation phase" of the contract the insurance company may assess a charge to cover the cost of issuing the contract (commonly known as a withdrawal charge). You may also incur tax penalties as a result of withdrawals prior to age 59 ½.

The second is the "payout phase" which begins when you are ready to receive income from your annuity. At that time, there are a number of options from which you can choose, according to your needs. You can withdraw your money in a lump sum, through systematic withdrawals or in a regular stream of income payments guaranteed to last as long as you live.

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Q. Who are the parties to an annuity?

A. The parties to an annuity contract are the insurance company, owner, annuitant and beneficiary(ies).

Annuities are issued by insurance companies. The owner is usually the person who buys the annuity from the insurance company and makes any contributions. The owner names the annuitant the person who will receive money from the annuity during the payout phase. The annuitant and owner are usually the same person, but do not have to be. The owner also names a beneficiary(ies), who receives any benefits payable upon the death of the contract owner. (Some contracts pay a death benefit upon the death of the annuitant prior to annuitzation. It is important to check your specific contract.)

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Q. What are the advantages of owning a deferred annuity?

A. Annuities have several advantages, including:

• Earnings grow tax-deferred.
• No annual tax reporting until you withdraw your annuity earnings.
• Unlimited contributions.
• Based on your contract value, you can choose a payout option that guarantees income for life to help meet your retirement income needs.
• No forced distribution at age 70 ½.
• Undistributed earnings will not reduce Social Security benefits.
• Usually avoids the delays and costs associated with probate.
• If provided in the contract, a death benefit that guarantees your beneficiaries will never receive less than your original investment (less withdrawals).

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Q. What's the difference between an annuity, a 401k plan and an IRA?

A. Like retirement plans such as 401(k)s and IRAs, annuities have special tax benefits granted by Congress to encourage people to save for retirement and to help them accumulate savings faster than in a taxable investment earning a similar rate of return.

The major differences are:

• Contributions to annuities are generally made with after-tax dollars. 401(k) contributions are generally made with pre-tax dollars, while IRA contributions are generally made with after-tax dollars. Depending on your Adjusted Gross Income and filing status (e.g., single, married, filing jointly), you may qualify to deduct fully or partially your IRA contribution on your federal income tax return. For this reason, it is advantageous to contribute to a 401(k) plan and an IRA before contribution to a deferred annuity.
• There are no limits on the contributions you can make to an annuity, unlike 401(k) plans and IRAs.
• When withdrawing money from an annuity, you will pay ordinary income taxes only on your earnings. If pre-tax contributions have been made to 401(k)s and IRAs, both principal and earnings will be taxed when withdrawn.
• There is no requirement to start withdrawing assets by age 70 ½ unlike traditional IRAs.
• Annuities offer the ability to create a payment plan, based on your contract value, that guarantees income for life.
• Unlike 401(k) plans and IRAs, annuities offer a death benefit. In most cases, the death benefit guarantees that your beneficiaries will never receive less than your original investment (less any pre-death withdrawals).

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Q. Are there times when I should not consider buying a deferred annuity?

A. Yes. Deferred annuities are a long term retirement savings tool. Therefore, you should not consider purchasing a tax deferred annuity if you need money to meet other short-term goals, such as saving for a college education, buying a home, or starting a business. You also should fully fund your 401(k), IRA, or any other plan that uses pre-tax dollars to save for retirement before purchasing a deferred annuity.

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Q. What choices do I have for withdrawing money from a deferred annuity?

A. You have many choices for taking money out of a fixed annuity, including:

• Lump sum. You can withdraw all your money at one time, ending the annuity contract. This option may cause your taxable income to increase significantly and move you to a higher tax bracket.
• Guaranteed income plans. You can choose to lock in a guaranteed income plan based on your contract value. There are variations, but the main options are: income for life, income for a specific period, or for a specific amount of income each payment. When you choose these options you "annuitize" your contract.
• Plans that provide Systematic withdrawals. A regularly scheduled income payment plan that allows you to continue making new investments and accumulating wealth, while your money grows tax-deferred. There is no guarantee, however, you won't outlive your money.

It is important to note that whether you choose to receive money systematically, in a lump sum or through a guaranteed income plan, earnings withdrawn are taxed at ordinary income rates. Early withdrawals may be subject to a withdrawal charge. Withdrawals of earnings prior to age 59 ½ may be subject to a 10% IRS penalty. Unless a contract is annuitized earnings are deemed withdrawn first for tax purposes. For contracts that are annuitized a more favorable presumption applies. Generally, for annuitized contracts part of each payment is deemed to be a return of investment in the contract and is not included as taxable income.

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Q. Are there any charges or penalties if I withdraw money from a deferred annuity?

A. Sometimes, depending on when you withdraw money from your annuity you may incur the following charges:

• Withdrawal charge. Typically, an insurance company will charge a fee (penalty) if you withdraw money before a certain time. This fee is often referred to as a withdrawal charge. Usually, withdrawal charges apply during the first several years. This fee may be a percentage of the amount you have invested or a percentage of the entire account value, including earnings.
• IRS penalty. Since annuities come with special tax benefits to encourage people to save for retirement, the IRS imposes a stiff penalty for withdrawing earnings before age 59 ½. For tax purposes, earnings are generally withdrawn first, taxed as ordinary income and may be subject to a 10% IRS penalty if the contract owner withdraws earnings prior to age 59 ½. However, exceptions to the penalty may apply. For example, if the contract is annuitized over the life of the annuitant, favorable tax treatment may still apply.

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Q. Are there circumstances where funds may be withdrawn charge-free?

A. Yes. Our annuities allow you to withdraw a certain percentage from your contract without paying a surrender charge. (IRS penalties still may apply however.) This is known as the charge-free amount and is generally 10% of your cash value. Contact your local office or write us to determine how much may be withdrawn surrender charge-free.

In addition, most of our products have a feature called "Critical Care Access". This allows policyholders to withdraw money from their annuity without a surrender charge if the contract owner is terminally ill or confined to a nursing home. This benefit is available at no additional charge. States vary as to qualifications that must be met before this is available, so consult your Bankers agent for more information. (Critical Care Access is not available in all states.)

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Q. Where do I mail a payment for my existing annuity?

A.
     Bankers Life and Casualty Company
     PO Box 2053
     Carmel, IN 46082

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Q. How do I make a change to my annuity? (e.g., change of beneficiary or address)

A. Just contact your local office or write us.

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Q. How can I withdraw funds from my annuity?

A. Call your local office or write to us. We will send the appropriate withdrawal form.

Q. What is a beneficiary?

A. A beneficiary is the person or persons designated to receive an annuity death benefit.

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Q. May I have multiple beneficiaries?

A. Yes, but you must designate the percentage or fraction payable to each.

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Q. What's the difference between a Primary and Secondary Beneficiary?

A. The Primary or First beneficiary is designated to receive the annuity death benefit if the annuitant dies. The Secondary or Alternate beneficiary will receive the proceeds only if the Primary beneficiary dies before the annuitant.

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Q. Who can change the beneficiary?

A. Only the contract owner can change the beneficiary.

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Q. Annuity 1099 Tax FAQ

A. Click here for Annuity 1099 Tax Information.

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