Riscario

compare with a nonprescribed annuity

• spread capital evenly over the expected benefit period
• each payment is a blend of interest and return of capital → good for tax planning

Advantages

• less interest is reported in the early years → less tax → more net income
• you know exactly how much taxable income is reportable each year

Qualifying Prescribed Annuity

• level benefit payments
  • exception: Joint Last and Survivor (JLS) where the payment can be reduced for the surviving annuitant upon the first death
• benefit payments start by December 31 of the year following purchase
• the annuitant owns the contract
• a Term Certain Annuity matures by age 90
  • age based on the younger life for a Joint and Last Survivor annuity

Taxation

• same tax burden each year
• interest and principal portions of each annuity payment is fixed and constant for the life of the annuity
• interest earned on the annuity principal is reported on a level basis over the life of the annuity
• reduces tax in the early years, meaning higher after-tax income in the early years
• same total amount of income tax as a nonprescribed annuity, but the timing differs