Contributory Treatment
Annuities offer tax-deferred growth, meaning the interest earned is not taxed until withdrawn.
During the accumulation phase, no federal or state taxes are paid on the interest.
During withdrawals, earnings are taxed as ordinary income (not as capital gains).
If you withdraw money before age 59½, a 10% federal penalty may apply, in addition to applicable taxes.
In Puerto Rico, Section 1081.02 of the Internal Revenue Code allows preferential treatment if the annuity qualifies under certain structures.
**This content is for educational purposes only and does not constitute tax advice. Consult your CPA to determine the appropriate treatment for your specific situation.**
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Frequently Asked Questions
Can I lose my money with an annuity?
It depends on the type. Some policies (such as certain fixed or indexed policies) may be designed to limit exposure to market losses, but there may be fees, limits, conditions, and contractual risks. The variables can fluctuate with the market. Furthermore, every annuity depends on the insurer's financial strength.
Can they be left as an inheritance?
In many cases, yes, through designated beneficiaries. The method of payment and the tax treatment depend on the contract and the beneficiary's circumstances.
Turn your savings into secure, long-lasting income. Schedule your consultation and start planning your future today.
Turn part of your savings into a predictable retirement income strategy. Annuities are contracts issued by insurance companies that can help you plan for a more stable retirement, allowing you to accumulate funds and/or establish an income stream depending on the option you choose. For many professionals (doctors, lawyers, and business owners), they can be a useful tool for balancing protection, planning, and liquidity within a comprehensive financial plan. Schedule a free informational consultation (no obligation to purchase).
**Educational information. Options subject to eligibility, approval, contract terms, limits, fees, and exclusions. Tax treatment varies; consult your CPA/attorney.**
Who is it for?
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Professionals with accumulated savings who want to structure their retirement with clear rules.
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Business owners who don't participate in (or don't rely solely on) traditional retirement plans.
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People nearing retirement who want to explore alternative planned income sources.
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Investors looking to diversify with insurance tools geared toward stability and planning, tailored to their profile.
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Annuities
How does it works?
You contribute a sum to an annuity, and the contract can be designed to:
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Accumulate funds over a period of time (accumulation phase), and/or
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Convert them into income (distribution phase), either immediately or in the future.
There are different types of annuities (for example, fixed, indexed, or variable). Each has different rules, fees, limits, and risks, so the selection depends on your objective, investment horizon, liquidity needs, and risk tolerance.
Inheritance and Will
When the holder (annuitant) dies
The contract passes directly to the designated beneficiary, without the need for inheritance or probate.
If there is a will with an heir other than the beneficiary designated in the contract, the designation in the contract legally prevails.
Beneficiaries can receive the accumulated value as:
Single payment (subject to taxation)
Continuous annuities
Transfer to another annuity via a 1035 Exchange (tax-free if structured correctly)
This content is for educational purposes only and does not constitute legal advice. Consult your attorney for proper beneficiary designation and estate planning.
Allocation of Interests
Annuities can generate income in several ways
Fixed: They pay a guaranteed interest rate for a specific period.
Indexed: Based on the performance of an index (such as the S&P 500), but protected against losses.
Variables: allow you to invest in funds (subaccounts), with greater risk and the possibility of higher returns.
Some combine guaranteed capital benefits with indexed growth (Fixed Indexed Annuities).
Results and accreditation methods depend on the contract, product limits, and conditions. Always review the specimen and plan disclosures.
Types of Annuities and Their Uses
Immediate Annuities: Provide payments from the first year; ideal for generating retirement income.
Deferred Annuities: Accumulate funds for future payments; used for long-term planning.
Fixed vs. Indexed vs. Variable: adapted to the client's risk profile.
With Lifetime Benefit (GLWB): guarantees monthly income for life, regardless of longevity.
With Extended Care Benefit: double or increase payments in case of medical necessity.
The availability of types and riders varies by insurer, jurisdiction, and eligibility. Additional benefits and costs apply where applicable.
Access to Money and Strategic Withdrawals
Most annuities allow partial annual withdrawals of up to 10% without penalty or fees.
After the “surrender” period (usually 5 to 10 years), you can withdraw without penalties.
Some annuities offer “Return of Premium Riders” clauses that allow you to withdraw 100% of your original deposit under certain conditions.
You can apply for annuities, 1035 transfers, or loans depending on the contract.
It is vital to structure withdrawals correctly to minimize tax impacts and maintain capital protection.
Key Benefits (No absolute promises)
Scheduled income options for a defined period or for life if the contract provides for it (e.g., through options/riders).
Accumulation with possible tax deferral, depending on the product and jurisdiction.
Contribution flexibility: single premium or periodic contributions, depending on the plan.
Beneficiary options and transfer mechanisms according to contract.
Some contracts may offer additional benefits (for example, extended care or accelerated benefits), if available and you qualify.
Stages of the Process
Evaluation of retirement goals, liquidity, time horizon and risk tolerance.
Comparison of modalities (fixed/indexed/variable) and review of costs, limits and charges.
Application and issuance of the contract (subject to eligibility and approval).
Periodic monitoring and adjustments as goals, practices, or income change.