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Flexible Premium Annuity

Flexible Premium Annuity

An individual buys an annuity to ensure guaranteed earnings for the later part of life. Annuities are considered as loans in reverse, given that the annuitant pays for the annuity contract and insurance company which holds the annuity will pay back the sum of money along with interest for specific period of time.

Payment for the annuity can be occurred at a time or with small sums of money for a particular period of time. When the annuity is bought with small sums of money for a period of time, it is regarded as a flexible premium annuity.

How Flexible Premium Annuity Works

A flexible premium annuity acts as a retirement account. There is no such set amount that the annuitant should pay into annuity every year, however there are maximums and minimums. Minimum amount that is paid into flexible premium annuity every year entirely depends on the annuity company through which the annuity is bought. The minimum payouts can be as smaller as 50 USD per year or as larger as hundreds dollars.

Even though, there is no such set amount that the annuitant should pay into an annuity account every year, but there is normally a maximum which is permissible. The maximum amount that the annuitant can pay into the flexible premium annuity account entirely depends on the annuities company through which annuity is purchased.

Most of the flexible premium annuities are actually deferred annuities. It means, even if an annuitant is paying into his or her annuity account for a period of time, the annuity payouts from the annuity account to the annuitant will not start for many years. Below some reasons are mentioned for which an annuitant may select to buy a flexible premium annuity:

  • Flexibility in the amount paid into the annuity account every year.
  • Smaller payments are easier to tackle for a long period of time.
  • The annuitant can take decisions to schedule his or her payments or can make unscheduled payments.
  • Flexibility in the time between two payments.

Flexible premium annuity can be tax-deferred and act much like a retirement account like 401 (k) plan or IRA. In certain cases, a flexible premium annuity payment into an account is tax-deferred till the payments are made from annuity account back to the individual. Much like retirement account, penalties can be charged on withdrawing money from the annuity account prior to the flexible premium annuity is matured as per the contract.

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