Question

Peter (age 62) and Natasha (age 49) purchased an annuity from their long-time financial advisor. The total amount of money that Peter and Natasha invested in the annuity over their working life was $250,000. Beginning when Peter is age 62 (now), they will receive $2,000 per month (adjusted for inflation annually) for the remainder of their joint lives.

What is the tax-free amount of each payment?

If Peter and Natasha both die when the unrecovered cost in the annuity is $100,000, is there a deduction or other means whereby they can benefit from this unrecovered cost?

Answer 1

Annuity : A fixed amount of money that is paid to somebody each year, usually for the rest of his/her life.

There are two types of annuities immediate and deferred. With an immediate annuity, you hand over the principal to an insurance company and in return receive income for life, While in deferred annuity one need to invest the amount over the life.

The earnings on a deferred annuity are only taxed when they're withdrawn. Money, invested in annuity plan is tax-exempt. Money invested for annuity is tax exempt. One can withdraw 25-33% at the annuity, and this amount is exempted from tax.

If an annuity has a death-benefit provision, the owner can designate one or several beneficiaries to inherit the remaining funds after death.