The Benefits Of A Flexible Premium Deferred Annuity

For those who are looking for an insurance based investment vehicle but want one that offers more flexibility than a standard deferred insurance investment vehicle, a flexible premium deferred annuity might be what you are looking for.

Annuities have long been used as investment vehicles for retirement programs. They allow participants to earn interest on the principle amount while deferring the tax consequences until a later date. This allows the money in the account to grow without being taxed, thus increasing the speed in which the investment grows. The insurance portion of the account helps to guarantee that the participant will have an income stream from the account that cannot be outlived.

Defining a Flexible Premium Deferred Annuity

A Flexible Premium Deferred Contract or FPDA is an insurance investment vehicle used for retirement that allows the contract holder to deposit funds on a regular ongoing basis. Unlike a standard deferred one that requires the same amount be deposited each month, a FPDA allows differing amounts to be deposited. In some cases, the amount can be as little as $50. The period in which deposits are required will vary from company to company but are typically monthly, quarterly, semi annually, or annually.

Other Benefits of a FPDA

One of the benefits of a FPDA ensures that the contract holder will receive an amount that will not be less that the total premium.

FPDAs can be used to fund other retirement vehicles that have limited amounts of deposits each year. IRAs, SEPs, and SAR SEPs are examples of qualified (tax deferred) plans that have limits on the amount that can be deposited each year. When the FPDA is beyond the time period in which a surrender charge is required, the policy holder can roll the funds from the FPDA into another qualified plan without incurring negative tax consequences.

Since the funds of an FPDA are guaranteed by the insurance company managing it, the funds are safe and relatively guaranteed to be there for the contract holder when needed in the future. For those who may be looking into diversifying their retirement portfolio and want something more secure than the typical bond fund, an FPDA may be worth investigating. An FPDA is considered one of the most secure and low risk retirement investments by many investment advisers.

Most FPDAs allow contract holders access to their funds if they take an early retirement without assessing surrender charges provided the contract holder has met certain requirements. If the contract holder has had the FPDA for at least five years and has attained the age of fifty-nine and one-half there is not a surrender penalty associated with the FPDA.

Finally, investing money to grow at a tax-free rate is a huge benefit for any investor. An FPDA will allow for the tax deferral of all gains on the contract until the time of withdrawal. This allows the account balance to grow at a faster rate than if capital gains tax were to be assessed each year at tax time.

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