Knowledge Base: Annuities

Explore Annuities in RightCapital

RightCapital enables advisors to capture every element of a client's financial landscape including existing Annuities and customized income strategies.

This article is designed to provide an overview of Annuities and their necessary components. To review entering Annuities into a client's profile, please review this article.

Annuity Overview

RightCapital allows users to easily enter annuities into a financial plan and customize income strategies by choosing from regular withdrawal, annuitization, or guaranteed income within all income types.

Users can also propose an annuity purchase using existing investment accounts to illustrate additional value or simply enter an annuity income card. Annuities are insurance contracts that provide additional savings and income for individuals in retirement. Once purchased annuities allow individuals to grow their assets and distribute income streams in retirement. Immediate annuities begin paying out to the owner immediately while deferred annuities begin paying out at a specified date in the future.

Qualified Annuities

Qualified annuities are funded with pre-tax dollars and are typically included in an employer-sponsored retirement plan. RightCapital will illustrate qualified annuities growing, tax-deferred until RMD's start or income distributions begin. Qualified annuities offer immediate tax savings for clients looking to diversify their retirement income sources

In order to illustrate annuities included in employer-sponsored retirement plans, RightCapital users can split the account into a qualified annuity component and a separate qualified investment account component within the Profile > Net Worth or step four of the initial data entry.

Taxation

Qualified annuities allow pre-tax contributions to grow tax-free until the income begins. Once the qualified annuity distributions start, the inflows will be taxed as ordinary income and subject to required minimum distributions.

Required Minimum Distributions

Qualified annuity accounts are subject to RMD's when the client turns 72. Advisors have the option to "take Annuity RMD's from IRA accounts first" within the client methodology area to let accounts grow as long as possible before paying out. If a qualified annuity account is entered with regular withdrawals selected, RMDs will show within the Retirement > Cash Flows > Accounts tab by selecting the Required Minimum Distributions drop-down menu.

If a qualified annuity account is entered into the client's net worth tab with "Lifetime Income Distributions" selected, RMDs will show within the Retirement >Cash Flows > Accounts tab by selecting the "Withdrawal from Accounts" in the drop-down menu. The amount shown will be the total of the Lifetime Income plus RMDs that are needed.

Non-Qualified Annuities

Non-Qualified Annuities are funded with after-tax dollars and are typically held outside of a retirement plan. Contributions to a non-qualified annuity are not deductible from the individual's gross income. RightCapital will illustrate non-qualified annuities growing, tax-deferred until RMD's start or income distributions begin. This provides a unique tax advantage for clients looking to diversify their retirement income sources.

Taxation

When entering a non-qualified annuity into the client's net worth or step four of the initial data entry, a cost basis field will allow users to input the after-tax dollars used to create the annuity. In RightCapital, income from Non-Qualified Annuities is distributed tax-free.

Roth Annuities

Roth Annuities are contracts purchased with funds from an individual's Roth IRA or 401K accounts. The account is allowed to grow tax-deferred until distributions begin. This account type offers the income benefits from an annuity while offering the tax benefits of a Roth account.

Taxation

Roth annuity account distributions will be governed by Roth IRA tax rules, therefore income distributed from a Roth Annuity will not be taxed within RightCapital.

Annuity Types

After entering an annuity account in the client's net worth, advisors can choose between three annuity types. These annuity types will help to determine the annuity's growth as it is projected within RightCapital.

Variable Annuity

Variable annuity account values can vary based on the market performance of underlying investments. Since these annuities are tied to market conditions they have the potential for higher returns but risk the account falling in value. The investments or asset allocation associated with the annuity can be customized while entering the account data into the Profile > Net Worth. For additional information on customizing a variable annuity's asset allocation click here.

In RightCapital, holdings or asset classes can be tied to Variable Annuity accounts to determine the growth in value. Advisors can propose alternative Variable Annuity asset allocation strategies within the Retirement > Analysis > Action Items. Variable Annuities can payout with regular distributions to cover cash flow needs, annuitization, or a lifetime income scenario.

Fixed Annuity

Fixed Annuity's earnings grow by a guaranteed rate over a period known as the accumulation phase. After the period of guaranteed growth, the owner can begin taking income from the account for a specified term during the distribution phase.

In RightCapital, advisors can list the crediting rate which determines the fixed annuity growth during the accumulation phase. Advisors can then payout fixed annuities with regular distributions to cover cash flow needs, annuitization, or a lifetime income scenario.

Indexed Annuity

Indexed annuity's value increases by the interest rate of a specific market index (ex. S&P 500). These annuities allow owners to benefit from positive market conditions, however, the interest is usually capped at a maximum growth value.

In RightCapital, advisors can customize an indexed annuity's growth by entering the cap, floor, spread, and participation rate within the client's net worth. Indexed annuities can payout with regular distributions to cover cash flow needs, annuitization, or a lifetime income scenario.

Annuity Fee's

When entering an annuity with lifetime income into RightCapital, advisors will see two fee inputs to consider. These fields can be used to include a variety of fees commonly associated with annuities like M & E fees, account fees, income rider fees, etc.

AV Base Fee: Represents any annuity fee that is calculated based on the client's account value (AV).

Benefit Base Fee: Represents any annuity fee that is calculated based on the client's benefit base.

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For additional assistance using Annuities within RightCapital please contact Support.