Retirement Account Explanation

An annuity is a financial product that allows a contract holder to accumulate money on a tax-deferred basis and receive a series of payments at regular intervals. People purchase annuities to obtain an income or to supplement retirement income they will receive from Social Security, pension benefits, investments and other sources. There are many different types of annuity contracts. Immediate annuity contracts provide income payments that normally begin within a year after the premium is paid. Deferred annuity contracts provide income payments that begin later, often after many years. Individual contracts cover only one person, while group contracts cover a specific group of people. 

Fixed Annuities: With fixed annuities, premiums accumulate at rates of interest set by the company, and the amount of each annuity payment is determined when payments begin. The insurance company issuing the annuity guarantees the principal less any withdrawals or surrenders.*

Deferred annuities are designed for long-term accumulation purposes. Early withdrawals may be subject to surrender charges and if taken prior to age 59 1/2, a 10% federal penalty may apply. Money distributed from the annuity will be taxed as ordinary income in the year the money is received. 

National Life Insurance Company and Life Insurance Company of the Southwest, both members of National Life Group, offer various types of annuities, each designed to help meet specific personal and business needs and objectives.

Indexed Annuities: An Indexed Annuity is usually a fixed (i.e., not a variable) annuity with alternate methods of determining and crediting interest. While traditional fixed annuities typically declare interest in advance for premium payments based on the performance of the company's underlying investments for those premiums, an IA's interest is determined, at least in part, by the performance of a specified index of marketplace performance (frequently the S&P 500 Index® or Russell 2000®)* over a stated period. For instance, the interest credit for an IA might be defined as 70% of the rate of increase in the S&P 500 Index® over each one-year period. Different IAs present different methods of determining the interest credits.

Unlike traditional fixed annuities, the policy owner may receive zero interest for a single period on a specific premium payment if the index performs poorly. However, with most IA designs, the premiums are protected and guaranteed to grow over time **. This is a feature unavailable with any form of direct participation in the marketplace, such as through a mutual fund or a variable annuity. Moreover, in better market conditions, the owner of an IA may experience interest credits that outperform traditional fixed annuities. Because it is an annuity rather than a mutual fund, the IA offers important insurance features including tax deferral, a death benefit that may be paid outside probate, and annuitization. 

Comparing the Options for IRA & Roth IRA

In order to settle down comfortably into retirement, one can use individual retirement accounts (IRAs). These are standalone tax-deferred accounts used for the purpose of saving up money for retirement. You fund an IRA by occasionally making contributions--deposits from your savings, deducting from payrolls, making a lump sum deposit, using annuities, etc.

There are many different types of IRAs, but most people generally choose between two types:

Traditional IRA:  Zero Tax on contribution;  Tax-deferred Growth;  help to reduce tax reduction on the year and taxed as ordinary income on withdrawal; must be under age 70 and a half to contribute. If you think future tax rates will be lower, then saving today on a pre-tax basis, such as a Traditional IRA, or your employer’s retirement plan, makes a lot of sense.

Roth IRA:  Tax on contribution;  Zero tax on growth; increase leverage on savings; no age limit on how long you can contribute. If you think future tax rates will be higher then you may want to consider a tax-free retirement strategy using financial products such as a Roth IRA or permanent life insurance. 

*Guarantees are based on the owner's ability to pay claims.