Tax Sheltered Annuities

The purchase of tax sheltered annuities, which are widely available to employees of public and private schools, colleges, religious affiliations, and non-profit and charitable organizations, is one of many excellent retirement investment options. This kind of annuity is usually available through entities with 403(b) or 501(c)(3) programs for employees--a definite plus for those who elect to work in educational or charitable capacities. This is how it works: Contributions from the employee's income are deducted each paycheck and placed into an account, safe from taxation until the employee begins to withdraw from the plan during retirement. Furthermore, the employee can often make additional contributions, also tax-free, at different times in her working years. The amount deducted from the employee's earnings is up to her, but generally is limited to about $15,500 a year, for as long as she works for a company with the appropriate plan.

Tax sheltered annuities provide working adults with an easy, safe method to save money for retirement years, with few risks and drawbacks. Employees who elect for this kind of plan do not lose their money to an insurance company if they die before reaping its full benefits, as the funds can be passed on to heirs and can also often be withdrawn if an emergency or financial crisis arises, which is not the case with many other annuities. Funds will absolutely not be taxed until the employee begins to withdraw them, which means higher profits for the investor. However, persons choosing this plan are highly encouraged to leave the money alone at least until they reach the age of fifty-nine and a half in order to maximize profits and avoid restrictive taxes; funds withdrawn before the appropriate time will be subject to penalties, resulting in the owner receiving less than the full, deserved income. Still, retirees choosing this method of investment are very likely making a good choice for future security.

One option for retirees may be equity indexed annuities, which are tax-deferred annuities with credited interest associated with an equity rate or index. Although somewhat complicated and difficult to understand, this is a generally safe, low-risk, conservative option that promises a minimum interest rate of about three percent. The principal is protected, yet there is also a possibility of increased profit, based on the health of the stock market. Profits are decided using a formula that is based on changes in the index to which the annuity is linked.

Still, despite its relative safety, this kind of annuity is not for everyone, and there are plenty of other options available for retirees. To decide which type of annuity is best for an individual, a few questions need to be considered, the first of which is how long the investor intends to leave money in the annuity. If a person is not able to invest for the long haul, equity indexed annuities are probably not a choice to bother looking into. Second, is the investor more interested in potential for higher earnings with some risk or conservative, steady interest rates? Determining personal investment values will direct a person to a retirement plan that is appropriate for individual needs.

Tax sheltered annuities seem to be fairly straightforward in their mechanics and very safe plans overall, but employees should not plunge into this investment option without careful thought and good financial advice. One consistent lesson in the Bible, especially in the books of wisdom, is that an important part of being a wise person is the willingness to take others' advice, as in "A wise man will hear, and will increase learning; and a man of understanding shall attain unto wise counsels" (Proverbs 1:5). Financial advisors are key when it comes to retirement investments, as these are the funds that will sustain a person after she is no longer able to earn a living through work. The security that a good annuity provides is priceless, so retirees should do their very best to purchase a plan that is going to suit their individual needs long-term.

If a retiree has decided that equity indexed annuities are the best investment option, she still has some research and question-asking ahead of her in order to decide which insurance company is the best for her to work with. Of course, she needs to choose a reputable company in good financial standing, but beyond that she needs to know how different plans work, the stipulations involved, and the unique drawbacks and benefits of each. It is important to ask companies what the guaranteed minimum interest rate for their annuities is, the length of the term, and what kind of indexing method will be used. Also, the investor should ask for an explanation of the payment options and the availability of funds for early withdraws and about any charges that may ensue in such a case. Finally, she should compare all of her notes, weigh the options, discuss the choices with trusted advisors--and hopefully the very best investment option will stand out clearly.

Retirement is supposed to be the reward at the end of decades of hard work in one's chosen career, not a time of worry and anxiety about how to pay the bills. Most people's elderly years are expensive because of increased doctor visits and medication costs, not to mention the need to provide for funeral costs to ease loved ones' burdens, but the person who plans ahead and works hard to save enough money will find her retirement years to be enjoyable, meaningful, and worthwhile. Tax sheltered annuities can certainly help to make a blissful retirement a possibility for many people, providing security through a steady, reliable income. Of course, wisdom always thinks ahead, so it is certainly never too early to start learning about equity indexed annuities and other retirement pension options.

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