Distribution Rules, Alternatives And Taxation - Annuity Options

Annuity Options

Spousal Benefits – Qualified pension plans must provide two forms of survivorship benefits for spouses.

  • Qualified Pre-Retirement Survivor Annuity (QPSA) – Once plan the participant is vested, the spouse is entitled to a pre-retirement annuity payment if the participant dies before retirement.
    • Payment would be the actuarial equivalent of 50% of the participant's vested balance as of the date of death.
  • Qualified Joint and Survivor Annuity (QJSA) – A payment from a qualified plan or 403(b) account that provides a life annuity to the participant and a survivor annuity for the spouse after the participant's death.

    QJSA rules apply to money-purchase pension plans, defined-benefit plans and target benefit plans. They can also apply to profit-sharing and 401(k) plans, but only if so elected under the plan.

    Generally, the survivor annuity must be 50 to 100% of the annuity paid to the participant.
    • Participants can waive the QJSA payment and receive a lump-sum or ad-hoc distribution instead, provided the participant's spouse consents to the waiver and the spousal waiver is witnessed by a plan representative or a notary public.
  • Life Annuity – An automatic form of payment for an unmarried participant. Monthly payments are made over the course of the participant's lifetime with payments stopping upon death. Plans may offer options as well.
  • Period-Certain Annuity – Provides annuity payments for a specified period, usually 10 to 20 years even if the participant and the spouse die before the end of the payment period. Subsequent payments would be made to a beneficiary.
  • Normally, a period-certain annuity would end at the conclusion of a specified period, but some plans allow for a life annuity with a period certain. In that case, payment is guaranteed to last for life or the period certain – whichever is longer. As a result, payment is less than for a straight life annuity.
    • For example, "Life – 10 years certain," would mean payments would be made for a minimum of 10 years.
Rollovers


Related Articles
  1. Retirement

    Are Annuities Retirement-Only Investments?

    Learn more about why annuities are generally purchased and the way that they can positively and negatively affect an individual preparing for retirement.
  2. Options & Futures

    20 Investments: Annuity

    What Is It? You can think of an annuity as another way of saying "annual payments". An annuity is a series of fixed-amount payments paid at regular intervals over the specified period of the ...
  3. Retirement

    How a Fixed Annuity Works After Retirement

    These popular investments can provide a steady stream of income during your retirement years. Here are the details.
  4. Retirement

    Why Are Annuities Important for Retirement?

    Understand how annuities work, and identify the benefits they provide for retirement, the most salient being a guaranteed income stream for life.
  5. Investing Basics

    Are Annuities Right for You?

    Annuities are safe and often appealing, but IRAs and 401(k)s offer advantages that annuities typically can’t match, with little additional risk.
  6. Investing

    Advising FAs: Explaining Annuities to a Client

    Conceptually speaking, annuities can be thought of as a reverse form of life insurance.
  7. Professionals

    Types of Annuity Payouts

    FINRA/NASAA Series 26 Section 3 - Types of Annuity Payouts. This section describes several annuity payout options: life annuity, life annuity with period certain, joint life with last survivor ...
  8. Professionals

    Types of Annuity Payouts

    FINRA Series 6: Section 11 Types of Annuity Payouts. In this section Payout Phase, Life Annuity, Life Annuity with Period Certain, Joint Life with last survivor, life contingency.
  9. Options & Futures

    Add Annuities To Your Retirement Portfolio

    The only real difference between you and Warren Buffett is a few well-chosen stocks – the billion-dollar fortune is the result.
  10. Investing Basics

    DIY Annuities: What You Need to Know

    Annuities are attractive because they can give you a stream of income, but they can be tricky to buy.
RELATED TERMS
  1. Qualified Joint And Survivor Annuity ...

    An annuity payment from a qualified plan or 403(b) account that ...
  2. Deferred Payment Annuity

    An annuity where the payments received will start some time in ...
  3. Annuity Due

    An annuity whose payment is to be made immediately, rather than ...
  4. Delayed Annuity

    An annuity in which the first payment is paid at a later date ...
  5. Annuity

    A financial product that pays out a fixed stream of payments ...
  6. Deferred Annuity

    A type of annuity contract that delays payments of income, installments ...
RELATED FAQS
  1. For what types of financial instruments would I want to calculate the present value ...

    Learn about the types of financial instruments the present value of an annuity calculation is most useful for, including ... Read Answer >>
  2. What are the main kinds of annuities?

    Learn about the four basic types of annuities, and why the different investment and payout options are suitable for different ... Read Answer >>
  3. What are the risks of annuities in a recession?

    Distinguish between the most common types of annuities, and understand which types of annuities pose the most risk during ... Read Answer >>
  4. What type of investor should consider annuities?

    Learn about the features and benefits of annuities and when to consider one. Investors seeking to secure income for retirement ... Read Answer >>
  5. What is the difference between the present value of an annuity and the future value ...

    Find out about the difference between the future value and present value of a fixed annuity, including how to use these calculations ... Read Answer >>
  6. What is an annuity?

    An annuity is a contract between you and an insurance company in which you make a lump sum payment or series of payments ... Read Answer >>
Hot Definitions
  1. Cost Of Debt

    The effective rate that a company pays on its current debt. This can be measured in either before- or after-tax returns; ...
  2. Yield Curve

    A line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but differing maturity ...
  3. Stop-Limit Order

    An order placed with a broker that combines the features of stop order with those of a limit order. A stop-limit order will ...
  4. Keynesian Economics

    An economic theory of total spending in the economy and its effects on output and inflation. Keynesian economics was developed ...
  5. Society for Worldwide Interbank Financial Telecommunications ...

    A member-owned cooperative that provides safe and secure financial transactions for its members. Established in 1973, the ...
  6. Generally Accepted Accounting Principles - GAAP

    The common set of accounting principles, standards and procedures that companies use to compile their financial statements. ...
Trading Center