Do You Understand the Common Terminology Surrounding Annuities?
Annuities and wealth management can be overwhelming to understand. Not everyone has the same comprehension of the information relating these concepts. This is why we have put together a run down of basic terms relating to annuities. By learning the basic definitions of common terminology surrounding annuities you will be able to better follow the process, procedures and concepts relating to investing with annuities and essential wealth management.
Financial, Investing, and Annuities – Terms to Know
Backup Withholding: When the taxpayer identification numbers rules are broken by a person, the government may take a mandatory withholding called a backup withholding. The IRS may also impose a backup withholding on an individual for other reasons. This withholding is claimable by a taxpayer as a credit on federal income tax returns.
Beneficiary: The beneficiary of annuities include the people or person deemed to receive the payments that are due in the event of the death of an annuity owner. It is for this reason that annuities are considered to be an investment providing peace of mind and giving investors the knowledge that their family is protected.
Bonus Rate: During the guarantee period (the first year) of annuities, there is an extra interest payment made as incentive to promote switching of business from one to another policy bringing in new business.
Certificate of Deposit (CD): A “low risk” means of investing with low returns and often a withdrawal penalty, obtained through savings and loans and banks which are short to medium in term, interest bearing and insured by the FDIC.
Charitable Annuities: Also known as Gift Annuities, these contracts are between a donor and a foundation whereby the foundation ensures annuity payments. This is different from a trust as a trust makes annuity payments from only its assets. There are two things about the charitable annuity that make it attractive to investors. The investor can decide whether they want immediate annuity to be paid no later than one year from the gift date or defer the annuity to a specific date. Also, income derived from the annuity could be at market value or higher giving way to potential investment return.
Although having a general understanding of the terminology relating to annuities and finance will be beneficial in your being able to negotiate the investment waters, it is still important to review all of your contracts and documentation regarding your investing matters. It is also vital that you talk with your investment advisor regarding your specific investment plan in order to keep abreast of the current status of your finances.
If the financial term you are looking for isn’t here, continue to check our annuity website. Our list of annuity and financial definitions will continue to grow (of course, according to the alphabet). By subscribing to our RSS feed, you’ll be informed when a new post is added and you’ll be able to conveniently increase your annuity and financial investing terminology knowledge.
Knowledge is power, and the more you educate yourself about annuities, the better prepared you will be when you are reading agreements, contracts, or annuity reviews.