Many of our clients from Farmers Insurance Group have wanted to know more about immediate and deferred annuities. To start off simply, the terms immediate annuity and deferred annuity simply indicate when the distribution phase of the annuity begins. Both allow unlimited contributions, and both can provide, upon election, a continuous stream of payments for life. So, what's the difference?
Immediate Annuities
First, we'd like our clients from Farmers Insurance Group to understand immediate annuities. Immediate annuities allow you to convert a lump sum of cash into an income stream. They differ from deferred annuities in that they do not have an accumulation period. They are funded with a single lump-sum payment rather than with a series of premium payments. An annuity option is chosen, and the distribution period begins within 12 months after the purchase.
Immediate annuities may appeal to any Farmers Insurance Group clients who want an investment return that they cannot outlive. The distributions are considered partly a return of the original investment and partly earnings. You are taxed on the earnings portion only.
Immediate annuities are also used to provide benefits from a terminated defined benefit pension plan. In this situation, the accrued benefits under the plan are determined for each plan participant, and a single premium annuity may be purchased for each plan participant, with benefits usually starting at age 65.
Another common use is in the structured settlement of lawsuits. In these cases, the parties agree to pay a sum of money not as a lump sum but as a series of payments, often for the life of an injured party. A monthly amount to be paid is agreed to by the parties, and an annuity is purchased that provides that amount.
Deferred Annuities
Next, we'd like to make sure our Farmers Insurance Group clients understand deferred annuities. With a deferred annuity, you make a lump sum or a series of premium payments and defer the payout until some time in the future. This is known as the accumulation period. The earnings in the annuity are not subject to taxation until distributed.
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Deferred annuities can provide an attractive investment supplement to IRAs and qualified pension plans such as 401(k) plans.
Note: We'd like our Farmers Insurance Group clients to note that annuity guarantees are subject to the claims-paying ability of the annuity issuer. Annuity distributions made prior to age 59½ may be subject to a 10% federal tax penalty unless an exception applies.
What is the 401(k) plan offered by Farmers Insurance Group?
The 401(k) plan at Farmers Insurance Group is a retirement savings plan that allows employees to save a portion of their paycheck before taxes are taken out.
How does Farmers Insurance Group match employee contributions to the 401(k) plan?
Farmers Insurance Group offers a matching contribution to the 401(k) plan, which typically matches a percentage of the employee's contributions, up to a certain limit.
What are the eligibility requirements for the 401(k) plan at Farmers Insurance Group?
Employees of Farmers Insurance Group are generally eligible to participate in the 401(k) plan after completing a certain period of employment, usually within the first year.
Can employees of Farmers Insurance Group make changes to their 401(k) contributions?
Yes, employees of Farmers Insurance Group can change their contribution amounts at any time, subject to certain plan rules.
What investment options are available in the Farmers Insurance Group 401(k) plan?
The Farmers Insurance Group 401(k) plan offers a variety of investment options, including mutual funds, stocks, and bonds, allowing employees to tailor their investment strategy.
Is there a vesting schedule for the employer match in the Farmers Insurance Group 401(k) plan?
Yes, the Farmers Insurance Group 401(k) plan has a vesting schedule that determines how much of the employer match employees can keep if they leave the company.
How can employees at Farmers Insurance Group access their 401(k) account information?
Employees can access their 401(k) account information through the Farmers Insurance Group employee portal or by contacting the plan administrator.
What happens to the 401(k) savings if an employee leaves Farmers Insurance Group?
If an employee leaves Farmers Insurance Group, they can roll over their 401(k) savings into another retirement account, withdraw the funds, or leave the savings in the Farmers Insurance Group plan if allowed.
Can employees of Farmers Insurance Group take loans against their 401(k) savings?
Yes, the Farmers Insurance Group 401(k) plan may allow employees to take loans against their savings, subject to specific terms and conditions.
Are there penalties for withdrawing funds from the Farmers Insurance Group 401(k) plan before retirement age?
Yes, early withdrawals from the Farmers Insurance Group 401(k) plan may incur penalties and taxes unless certain exceptions apply.