What Happens When an Annuity Matures?
An annuity matures after the accumulation phase, which typically spans several years, depending on the terms of the contract. At maturity, the annuity holder has several options for how to proceed.
1. Payout Options
The most common option is to convert the annuity into a stream of income payments. This can be structured as:
- Lifetime Income: Payments continue for the rest of the annuitant's life, providing financial security.
- Fixed Period: Payments are made for a predetermined period (e.g., 10, 20 years).
- Joint and Survivor: Payments continue for the lives of two individuals, ensuring income for both parties.
2. Lump-Sum Withdrawal
Another option is to withdraw the total value of the annuity as a lump sum. While this provides immediate access to cash, it may involve tax implications and penalties.
3. Rollover Options
Some annuity contracts allow for a rollover into another retirement account, preserving tax-deferred growth options.
4. Tax Considerations
It's crucial to understand that distributions from annuities are typically taxed as ordinary income. Planning for taxes is essential to avoid unexpected liabilities.
Ultimately, the choice depends on individual financial goals, cash needs, and tax circumstances. Consulting with a financial advisor can help in making an informed decision.