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Tax-deferred fixed annuity

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Your WFLA tax-deferred fixed annuity We carry reserves that must, at all times, be equal to the withdrawal value of your annuity certificate. In addition to reserves, state laws also require certain levels of capital and surplus to further increase certificate holder protection.

Income tax advantages Your money grows faster in a tax-deferred fixed annuity than in a taxable account because you don’t pay taxes while your interest is compounding. The effects of tax-deferral are substantial. By sheltering the taxes on your interest earnings, future income can be substantially increased.

Tax-deferred vs. Fully taxable To illustrate the increased earning capacity of tax-deferred interest, compare it to fully-taxable earnings.  $25,000 will earn $1,000 of interest in one year.  A 25% tax bracket means that approximately $250 of these earnings will be lost on taxes, leaving only $750 to compound the next year.  If these same earnings were tax-deferred, the full $1,000 would be available to earn even more interest.  The longer you can postpone taxes, the greater your gain.

In this hypothetical example ...if you cashed out at the end of 25 years, assuming a continuation of taxes at 25%, you would have $56,234 after taxes ($66,645 minus $10,411 paid in tax on $41,644 of earnings). The extra $5,410 is the interest that you earned on the money you didn’t have to pay in taxes while your money was compounding. For most, the future tax will be paid after retirement when it is normal to be in a lower tax bracket.  Even if your tax bracket remains the same, you are still ahead because of the extra interest you were able to earn.  You may prefer random withdrawals to completely cashing out because you are only taxed on the amount of interest actually withdrawn. The remainder of your untaxed interest continues to grow tax-deferred.

Tax-favored annuity income Another advantage of the tax-deferred annuity is that you can receive income whenever you want.  This means you can use your annuity certificate to plan for additional retirement income.  Annuity income is a systematic distribution of both principal plus interest, designed to help you continue to minimize your income taxes.  Naturally, the longer taxes are deferred, the greater this future income will be.  You may request that your funds be distributed in this way.  Annuity income is tax-favored because the return of principal portion is tax-free during the entire pay-out period, with the interest earnings spread over several years to help you keep your future tax bracket at a minimum.

Avoid Probate At death, the accumulating funds within your annuity will be made available to your named beneficiaries, avoiding the expense, delay, and publicity of the probate process.  Like most assets, the annuity is part of your taxable estate.  Your heirs can choose to receive a lump sum payment or a periodic income.

Is a tax-deferred annuity the same as a deductible or Roth IRA? The interest earnings are tax-deferred the same as a deductible IRA, but you cannot deduct the initial amount from your current earnings for income tax purposes.  Due to the limitations imposed on IRA’s, the annuity should be considered as an unlimited tax-advantaged program that picks up where an IRA or Roth IRA leaves off.  A Roth IRA has earnings that may never be taxed if held for the required time period.  Unlike a deductible IRA or a Roth IRA, you do not need to have “earned income” to make a deposit.

Withdrawals, fees, and taxes There are no fees to open your new annuity contract and there are no administrative fees along the way.  While your account is compounding, you may withdraw funds in accordance with contract provisions.  WFLA offers withdrawals on all of our annuity products, subject to a surrender charge period enforced in the first nine years.  Withdrawals before age 59 1/2 are subject to a 10% IRS penalty.  Twelve percent of the account balance is available annually while the surrender charge period is in force.  A surrender charge is only on the withdrawn amount in excess of the 12%.  The “Last-In, First-Out” accounting method is used for random withdrawals.  Interest earnings are last in, so they are distributed first. If a withdrawal exceeds the total interest earned, the excess is a tax-free return of principal. An annuity income distribution is part principal (tax-free) and part interest (taxable as received).