Who Is an Annuitant?
Let me explain what an annuitant is: you're looking at someone entitled to collect regular payments from a pension or an annuity investment. This could be the contract holder themselves or another person, like a surviving spouse.
You should know that annuities are typically viewed as supplements to retirement income. They might connect to an employee pension plan or a life insurance product. The payment size depends on the annuitant's life expectancy and the invested amount.
Key Takeaways
Here's what you need to remember: an annuitant is an investor or pension plan beneficiary entitled to regular payments from a pension or annuity. They might qualify for a deferred or immediate annuity. A deferred annuity acts like a retirement investment, similar to an IRA or 401(k).
Understanding Annuities and Annuitants
An annuity provides regular payments of guaranteed income for life or a set number of years. As an annuitant, you could be a retired civil servant getting a pension or an investor who paid an insurance company for income supplements.
Based on the contract, the owner can name one or more annuitants, such as a spouse or elderly parent, or set up a joint annuity. You can also arrange for payments to transfer to a surviving spouse if needed. Remember, the annuitant must be a person, not a company, organization, or trust.
Payments to you as the annuitant are calculated using your age, life expectancy, and that of any beneficiaries. For instance, if you're 65 and the annuity transfers to your 60-year-old wife if she survives you, the insurer figures on making payments for about 24 years, matching a 60-year-old woman's life expectancy.
Fast Fact
Most annuities get taxed as ordinary income— that's a key point you should note.
Another Variation of Annuities
In another setup, an annuity can be 'life-plus,' meaning payments continue for your lifetime as the annuitant and then transfer to a surviving spouse for a specified time.
Types of Annuities
There are many annuity variations, but they boil down to two basics. A deferred annuity serves as a retirement savings tool where you invest money over time for future payment streams—many company pensions work this way. An immediate annuity is straightforward: you pay a lump sum for payments starting right away, either for life or a specific period, often called a life plus period certain annuity.
How Are Annuities Taxed?
Annuities are generally taxed as ordinary income. The part representing the contract holder's basis isn't taxed, just the gain. For employer pensions, the whole payment usually gets taxed as ordinary income.
Is an Annuitant the Same as a Beneficiary?
No, they're different. In an annuity contract, you as the annuitant might be the owner, but you can't be the beneficiary. The beneficiary receives the death benefit when the annuitant dies.
What Happens to an Annuity When the Annuitant Dies?
It depends on the contract. For a single life payout, payments stop at death with no death benefits. For joint-life, there are death benefits: the beneficiary collects until their death, often a surviving spouse but not always.
The Bottom Line
As an annuitant, you're receiving periodic or lump-sum payments for life or a certain period. You're often the annuity owner, but not always. The aim is usually a steady income stream for retirement years.
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