In a typical immediate annuity contract, an individual would pay a lump sum or a series of payments ( sometimes called " annuity considerations " ) to an insurance company, and in return pay the annuitant a series of periodic payments for the rest of their life.
22.
In the U . S ., the tax treatment of a non-qualified immediate annuity is that every payment is a combination of a return of principal ( which part is not taxed ) and income ( which is taxed at ordinary income rates, not capital gain rates ).
23.
Be careful in regard to using GLB riders in non-qualified contracts as most of the products in the annuity marketplace today create a 100 % taxable income benefit whereas income generated from an immediate annuity in a non-qualified contract would partially be a return of principal and therefore non-taxable.
24.
Because immediate annuities generally provide a series of guaranteed payments, the annuity company normally matches its liabilities with government bonds and other high grade bonds, and the market yield available on these bonds largely determines the retail pricing of the annuities . ( The companies are usually required by law to invest their funds in this way, to reduce the risk of default .)
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