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HELP! I’M RUNNING OUT OF MONEY

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or legal limit to the amount of contributions (or lump sum) that may be made on an annual basis. These premiums are made after taxes, though.

The distribution phase begins once the annuity owner begins to receive the annuity’s payouts. There are a few limiting factors to when the distribution period may begin. First, the owner must be at least 591/2 years old, otherwise he or she will be subject to the IRS’s 10 percent early withdrawal penalty. Of course, there are a few exceptions. Second, annuities carry surrender charges. Therefore, you will want to defer the distribution phase until the surrender charges have declined or have been eliminated. Finally, annuity con- tracts generally stipulate the maximum age at which distributions must start. However, this is usually a quite advanced age, such as 87. There are no tax laws that specify a required beginning date for non- qualified annuities.

FIXED ANNUITIES

Fixed annuities, or fixed-dollar annuities, grow at a guaranteed rate. At the beginning of the annuity contract, the insurance company and the annuity owner enter into an agreement through which the owner will pay a stated amount in premiums and the insurance company will pay a set rate of interest. While the insurance company will lock in a specified interest rate at the beginning, future interest rates will vary according to current market conditions. However, the insurance company will specify for what length of time the interest rate is good. It may be for as short as two months, or as long as five years. Many times, the subsequent interest rates are lower than the initial rate. Generally, though, annuity contracts will have a minimum guar- anteed interest rate, below which the insurance company cannot set its rate. The contract may also have a bailout provision designed to protect annuity owners. This provision states that if the insurance company sets its rates below a certain level, the annuity owner has the option of withdrawing all of his or her funds from the annuity, or may exchange the annuity without any surrender charges. Fixed annuities will pay out at a specified dollar amount to the owner for each period once the distribution period begins.

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