What Is an Annuitant?
An annuitant is an individual with the right to receive regular pension or annuity payments. The contract holder or another individual, like a surviving spouse, maybe the annuitant. Typically, annuities are thought of as additions to retirement income. They might be connected to a life insurance policy or employee pension plan. The life expectancy of the annuitant, as well as the amount invested, often influences the magnitude of the payouts.
A recurring guaranteed income distribution for life or a certain period is known as an annuity. An investor who has paid a quantity of money to an insurance firm in exchange for a regular income supplement is known as an annuitant. Another example would be a retired public worker who gets a pension plan.
The owner of an annuity may designate one or more annuitants, such as a spouse and an elderly parent, or may establish a shared annuity depending on the contract’s parameters. If necessary, the annuitant can also arrange to pass the payments to a surviving spouse. The annuitant must always be a person and cannot be a firm or a trust. The payments made to an annuitant are determined by the annuitant’s age, life expectancy, and any beneficiaries’ ages and life expectancies. The insurance company will estimate that it will provide monthly payments for around 24 years, which is the life expectancy of a 60-year-old woman, assuming the annuitant is 65 years old. The annuity is transferable to his 60-year-old wife if she survives him.
Another option is to purchase an annuity with a “life-plus” term, in which case the payments will be made for the annuitant’s life and then passed to the surviving spouse for a certain amount of time.
Various Annuity Types
Although annuities come in numerous forms, there are only two main categories:
- A delayed annuity is frequently utilized as a means of saving for retirement. In exchange for a future stream of annuity payments, the annuitant consistently invests money over time. This is how many employer pension plans are set up.
Instantaneous annuities are exactly what they sound like. In exchange for a succession of payments that start immediately and are made for life or a certain amount of time, the annuitant makes a lump sum payment. A life-plus-time definite annuity is the name of the latter choice.
- Annuitants’ Taxes
Ordinary income is often taxed on annuities. Only the gain component of the annuity payments is subject to taxation; the remainder reflects the contract holder’s basis. An employer pension payment is subject to ordinary income tax on the total amount received.
- An annuitant is an investor or pension plan beneficiary qualified to receive consistent payments from a pension or annuity investment.
- A delayed annuity or an instant annuity may be available to the annuitant.
- Usually used as a retirement investment, deferred annuities are comparable to IRAs and 401(k)s.