Accumulation Period

The period of time between when the annuity is issued and when the insurance company begins to make income payments to the annuitant. Interest earned or investment results experienced on the accumulated payments during this time are added to the account tax-deferred under current tax laws.

Annuitization

Annuitization involves converting your accumulated retirement assets into a series of periodic payments that last for a period of time of your choosing, in accordance with the provisions of the annuity contract.

Distribution Period

The period of time, either a specified number of years or lifetime, over which distribution payments are made to the annuitant. Earnings become taxable when the annuitant begins to receive payments. The payout during the distribution period can either be fixed or variable.

Premature/Early Withdrawals (Distributions)

Withdrawals are reported as income and are subject to ordinary income tax treatment (as opposed to capital gains or dividend income), and if made prior to age 59½, may be subject to an additional 10% federal income tax penalty.  In addition, company imposed surrender charges may apply to certain withdrawals.

Surrender

Termination of the contract by the owner. Most annuity contracts impose surrender charges during the early years of the contract, and each subsequent contribution may have its own surrender charge period. All accumulated interest will usually be taxable to the owner at time of surrender, and tax penalties (10%) will apply if the owner is not yet 59½ years of age (unless an IRS exception applies).

Systematic Withdrawals

With this payout strategy, you can withdraw money from the accumulated value of your contract on a regular schedule – making it an effective way to supplement income either before or after retirement. Systematic withdrawals are also flexible.

Withdrawal Charges

Most annuities will allow a certain percentage of the account value to be withdrawn free of charge in each of the initial contract years. Beyond this “free corridor,” a withdrawal charge, expressed as a percentage of the amount withdrawn, is assessed for a specified number of years after the issue of a deferred annuity or after the date of a subsequent contribution. The charge typically decreases annually until the year specified in the contract, when it reaches zero, and all future withdrawals are without charge.