What Is An Annuity Loan?
An annuity loan allows a person who holds an annuity to borrow money against the cash value of the contract without cashing out the annuity. There are a number of advantages to taking out an annuity loan, and an annuity loan offers a few unique features.
Typically, an individual purchases an annuity as a retirement investment. He makes regular payments to an insurance company to purchase the entire contract. Once he reaches retirement age, the annuity pays out a specified amount of money each month. Occasionally, the holder of the annuity may want to access the accrued cash in the annuity without cashing out the contract. They can do this by taking out an annuity loan.
Benefits of Annuity Loans
The biggest benefit of an annuity loan is that you can access the accrued value of your annuity without paying surrender fees. As with any other type of loan, you'll have to repay the loan with interest, but you'll generally have up to five years to pay off the loan and reimburse your annuity.
In addition, you can avoid paying taxes and early distribution penalties on the use of your money when you access it through an annuity loan. Generally, if you cash out your annuity before you reach age 59 1/2, you'll have to pay an early distribution penalty and pay taxes on it as if it were regular income. When you take out an annuity loan, you avoid both of those expenses.
Considerations for Annuity Loans
There are a couple of things you should consider when taking out an annuity loan. First, state laws vary as to the treatment of annuity income and annuity loans for state tax purposes, so be sure to check the laws and regulations in [statetitle]. Keep in mind that you will be responsible for paying the early distribution penalty if you don't repay the annuity loan within the specified period, and that you'll miss out on any earnings your money could be making if you left it in the annuity.
If you're looking for an annuity loan in Canandaigua NY, there are many companies that can provide you with more information about the benefits and drawbacks. Look for lenders and sellers of annuities in Canandaigua NY to learn more about annuities and annuity loans.