Wraparound Annuity

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DEFINITION of 'Wraparound Annuity'

A type of annuity that allows the investor (the holder of the annuity) control in the underlying investments in the annuity plan. An annuity is tax-deferred contract sold my an insurance copany that pays an income benefit on a regular basis for the life of the contract holder, the life of his or her spouse, or some other defined time period. The wraparound option give annuity holder the benefit of choosing the type of investment in the annuity.

BREAKING DOWN 'Wraparound Annuity'

Because the income generated in a wraparound annuity plan is tax-deferred (that is, no taxes are paid until a withdrawal is made), the IRS no longer allows individuals to choose underlying investments for the purpose of evading taxes. The exception is when the annuity holder could not otherwise purchase a type of fund; in other words, the IRS does not allow individuals to shelter funds in the tax-deferred annuity if the underlying investments can be purchased through other means (without a tax deferral).

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RELATED FAQS
  1. What are the best ways to sell an annuity?

    The best ways to sell an annuity are to locate buyers from insurance agents or companies that specialize in connecting buyers ... Read Full Answer >>
  2. How are non-qualified variable annuities taxed?

    Non-qualified variable annuities are tax-deferred investment vehicles with a unique tax structure. After-tax money is deposited ... Read Full Answer >>
  3. Can a variable annuity be rolled into an IRA?

    You can roll qualified variable annuities, such as other qualified retirement plan accounts, into a traditional IRA. Non-qualified ... Read Full Answer >>
  4. Are variable annuities subject to required minimum distribution (RMD)?

    Variable annuities are insurance contracts that provide tax-deferred growth of assets that can later generate a guaranteed ... Read Full Answer >>
  5. For what types of financial instruments would I want to calculate the present value ...

    Because the present value of an annuity formula relies on a consistent interest rate and identical payments for a set period ... Read Full Answer >>
  6. What exact information is included in the interest rate when calculating the present ...

    When calculating the present value of an annuity, the interest rate percentage is the rate at which future payments are discounted ... Read Full Answer >>

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