Wraparound Annuity


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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  1. Can I borrow from my annuity to put a down payment on a house?

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  2. What are the main kinds of annuities?

    There are two broad categories of annuity: fixed and variable. These categories refer to the manner in which the investment ... Read Full Answer >>
  3. What are the risks of rolling my 401(k) into an annuity?

    Though the appeal of having guaranteed income after retirement is undeniable, there are actually a number of risks to consider ... Read Full Answer >>
  4. How do I get out of my annuity and transfer to a new one?

    If you decide your current annuity is not for you, there is nothing stopping you from transferring your investment to a new ... Read Full Answer >>
  5. What are the biggest disadvantages of annuities?

    Annuities can sound enticing when pitched by a salesperson who, not coincidentally, makes huge commissions selling them. ... Read Full Answer >>
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