Keeping Your Money – and Your Retirement – Safe

KEEPING YOUR MONEY – AND YOUR RETIREMENT – SAFE ANNUITIES: SAFE MONEY INVESTMENTS THAT GROW DURING RETIREMENT AND CAN PROVIDE A STREAM OF LIFETIME INCOME Learn why annuities may be one of the best investments you can make if you want to keep your money safe while continuing to grow your wealth in retirement. [email protected]

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FOREWORD Thank you for your time and interest! This booklet was created as an educational guide to bring you greater clarity and understanding of the financial decisions you make. If you need more information on a subject discussed, we welcome your email and will attempt to get you the answers you need. Please be mindful as you read this; everyone’s financial situation is different. So any product or solution must match your specific financial picture. We strongly recommend you consult with a highly-rated professional about every financial decision you make. Because, just as not all products are created equal, neither are all financial professionals, and the difference in knowledge and advice can be substantial from one advisor to another. Working with a highly knowledgeable, independent, well-rated professional can make all the difference when it comes to the results you achieve. If you are ready to explore your retirement options and want some help cutting through the clutter and jargon, visit www.CertifiedSafeMoney.com for unbiased information and to connect with professionals who can answer all of your most pressing questions. If you ever have feedback related to this booklet or concerns about your retirement income and financial security, please email us at [email protected]. 3 [email protected] www.certifiedsafemoney.com CSM202101ANNUITIES

WHY ANNUITIES ARE A SAFE INVESTMENT IN RETIREMENT PLANNING Does the concept of guaranteed lifetime income in retirement sound attractive? While some individuals and companies don’t recommend annuities, the reality is that annuities are one of the best safe money investments available and can provide a guaranteed lifetime income in retirement. Depending on the type of annuity you choose – whether it’s a fixed, fixed index, variable or immediate – annuities can generate taxdeferred growth on your savings. At the same time, fixed and fixed indexed annuities also protect your principal. Therefore, if you want safety, tax-deferred growth, and guaranteed retirement income, you should make sure you understand what annuities are and whether they make sense for you and your family when considering the best financial retirement plan. UNDERSTANDING ANNUITIES Many of today’s financial products have a considerable amount of “jargon” related to them, making it difficult to understand how the products work and whether they are right for you. With that in mind, knowing the words and phrases on the following pages can help you get a better grasp of annuities and their unique characteristics. VISIT www.certifiedsafemoney.com TO FIND THE BEST-RATED PROFESSIONALS IN YOUR AREA WHO SPECIALIZE IN ANNUITIES AND OTHER SAFE MONEY INVESTMENTS. 4 [email protected] www.certifiedsafemoney.com CSM202101ANNUITIES

ANNUITY Annuities are contracts between an individual and an insurance company, which offer a certain guaranteed result or pays out a set amount of income for a predetermined length of time – including for the remainder of your lifetime. Many annuities offer other benefits, too, such as tax-deferred growth and penalty-free access to your savings in certain circumstances. FIXED ANNUITY A fixed annuity guarantees the offering insurance company will pay the purchaser a guaranteed fixed rate of interest on their contribution(s) to the annuity for a set period. Fixed annuities can provide you with the tax safety of principal in any type of market environment, as well as tax-deferred growth. Some of the key benefits of fixed annuities are their safety and predictability. FIXED INDEXED ANNUITY Fixed indexed annuities are a type of fixed annuity. The most significant difference between a regular fixed annuity and a fixed indexed annuity (FIA) is how the return is determined. For example, a fixed indexed annuity tracks an underlying market index (or more than one index), such as the S&P 500. If the tracked index performs well, a positive return can be credited to the annuity, frequently up to a stated maximum. If, however, the underlying index performs poorly, the fixed indexed annuity will not lose value. So, in some ways, a fixed indexed annuity could provide you with a “best of both worlds” scenario. As with other types of annuities, FIAs also offer the option of receiving a lifetime income stream. VARIABLE ANNUITY Variable annuities are very different from fixed annuities and fixed indexed annuities because the return of a variable annuity is based on underlying risk-based investments like mutual funds. The positive return on this type of annuity is often uncapped so that the return can grow substantially. This growth is also tax-deferred. However, the opposite is also true as substantial losses can occur in negative markets. Therefore, variable annuities are not considered safe money investments and are significantly riskier than fixed or fixed indexed annuities. 5 [email protected] www.certifiedsafemoney.com CSM202101ANNUITIES

MULTI-YEAR GUARANTEED ANNUITY (MYGA) A multi-year guaranteed annuity, or MYGA, is a type of fixed annuity that offers a set rate of return for a predetermined amount of time, such as five or ten years. This growth takes place on a tax-deferred basis. Once the guaranteed rate on an MYGA has expired, the annuity owner may choose to reinvest the funds for another set period or withdraw the money penalty-free. MINIMUM GUARANTEE Fixed annuities will typically guarantee to credit a minimum yield. This allows your money to continue growing – regardless of how the stock market is performing. Because of annuities’ tax-deferred nature, even a relatively low return rate can compound significantly over time. ANNUITANT The annuitant is an individual who is entitled to collect the income payment from an annuity. There may be more than one annuitant, such as a husband and a wife, who can both receive an annuity’s income payments. IMMEDIATE ANNUITY An immediate annuity begins making income payments right away (typically within 12 months of the annuity’s funding). Many retirees will rollover funds from an employer-sponsored retirement plan or IRA to convert that money into an ongoing retirement income stream. DEFERRED ANNUITY Deferred annuities can pay out an income stream at a time in the future. These annuities may be funded with just one lump sum contribution or with multiple contributions over time. The funds that are inside of a deferred annuity grow on a taxdeferred basis. Fixed, fixed indexed, and variable annuities can all be deferred. DEATH BENEFIT When the annuitant dies, many annuities will pay out the account value to a named beneficiary (or to multiple named beneficiaries) penalty-free. Unlike a life insurance death benefit, though, the proceeds from an annuity’s death benefit may be taxable to the recipient(s) if there has been growth on the product since the initial purchase. BENEFICIARY As it pertains to an annuity, the beneficiary is the person (or persons) who receives the death benefit if the annuitant (i.e., the income recipient) dies. 6 [email protected] www.certifiedsafemoney.com CSM202101ANNUITIES

MARKET VALUE ADJUSTMENT (MVA) A market value adjustment, or MVA, is a feature found in many fixed and fixed indexed annuities whereby changes in interest rates impact how much is paid to an annuitant or beneficiary if some or all of the annuity funds are surrendered early. If interest rates go up after this type of product is purchased, the MVA could reduce the amount paid out, while the opposite could also be true if rates decline. TAX-DEFERRED The gains in an annuity’s account grow taxdeferred, meaning that there is no tax on the growthuntilthetimeofwithdrawal.Taxdeferral allows funds to grow exponentially since you generate a return on your contribution(s) and the previous growth and on the funds that otherwise would have been paid out in taxes. Keep in mind that tax deferral and tax-free are not the same because tax-deferred money is eventually taxed upon withdrawal. SURRENDER PERIOD Most insurance products – including annuities – will charge a penalty if the contract is canceled within a stated period. This time frame is known as the surrender period. Surrender periods may be as short as a couple of years or as many as a dozen or more. Generally, the surrender charge percentage will start higher and gradually decrease until it eventually ends. Many annuities typically allow you to access up to 10% during the surrender charge period without penalty (although taxes or an IRS early withdrawal penalty of 10% could still apply). MATURITY DATE An annuity’s maturity date refers to the longest time you may keep the annuity’s account growing tax-deferred before you are required to withdraw it. The maturity date is frequently tied to the annuitant’s age, such as 80 or 90. EXCLUSION RATIO The exclusion ratio applies to non-qualified annuities (which are funded with after-tax dollars). This ratio is the percentage of return that is not subject to taxation upon withdrawal. Anything above the exclusion ratio, however, can be subject to taxes. 7 [email protected] www.certifiedsafemoney.com CSM202101ANNUITIES

LIVING BENEFITS Many annuities offer living benefits whereby funds may be accessed penalty-free in certain circumstances. These benefits can also refer to income that is paid out from the annuity. LIFETIME INCOME BENEFIT RIDER A lifetime income benefit rider, or LIBR, guarantees that you will receive regular income payments from the annuity for the remainder of your lifetime – regardless of how long that may be, even if the contract value of the annuity has reached $0. This rider can often be added to an annuity for an additional cost. CHRONIC ILLNESS WAIVER A chronic illness waiver allows the annuitant to access funds from the annuity penaltyfree – even during the surrender period – if he or she has been diagnosed with a chronic health condition. TERMINAL ILLNESS WAIVER The terminal illness waiver on an annuity will also allow access to penalty-free funds if the annuitant (i.e., the income recipient) has been diagnosed with a terminal illness and he or she has a life expectancy of 12 months or less. CONFINEMENT WAIVER With a confinement waiver, funds may be taken from the annuity penalty-free if the annuitant must reside in a nursing home facility – typically for at least 90 days. QUALIFIED ANNUITY A qualified annuity is funded with pre-tax dollars. In this case, the contributions may be deducted from your gross income, and the earnings in the annuity are not subject to federal taxes until the time withdrawals are made. Many retirees will roll funds from a 401(k) or another similar plan into a qualified annuity to generate an ongoing income stream for retirement. NON-QUALIFIED ANNUITY Non-qualified annuities are funded with after-tax money. So, the contributions that go into a non-qualified annuity are taxed before being contributed to the annuity. Upon withdrawal, these funds will not be taxed again. But any gains in a non-qualified annuity are taxed as ordinary income when they are accessed. 8 [email protected] www.certifiedsafemoney.com CSM202101ANNUITIES

HOW AN ANNUITY WORKS An annuity is defined as a contract between you and an insurance company in which you contribute either a lump-sum payment or a series of payments. In return, you receive regular income disbursements that begin right away or sometime in the future. Annuities are not new financial products. The history of annuities dates back to the Roman empire when they were used to pay Roman soldiers as a form of compensation for their military service. Today, individuals can purchase annuities to supplement retirement income or help with an income “gap” between the time they leave their employer and the time they can begin taking other retirement income benefits like Social Security. With the disappearance of employersponsored pension plans, many people turn to annuities to create their own “personal pensions” with an income stream they can count on for life. THE MANY BENEFITS THAT ANNUITIES CAN PROVIDE Annuities can provide a long list of benefits, such as guaranteed income and tax-deferred growth. Some investors use annuities to enhance their tax-advantaged savings while planning for an income stream in retirement. For example, even though IRAs (Individual Retirement Accounts) and employersponsored retirement plans can provide you with tax-deferred savings, these accounts impose maximum annual contributions. For instance, if you are age 49 or younger, you may only contribute up to $6,000 (in 2020) to an IRA. Investors who are 50 or over may contribute an additional $1,000. Likewise, if you are a participant in a 401(k) or another similar employer-sponsored retirement plan, the amount of money you contribute is also capped. In this case, (in 2021), the annual maximum contribution limits for 401(k)s, 403(b)s, and most 457 retirement plans are $19,500 for those who are age 49 and younger and $26,000 if you are age 50 or over. 9 [email protected] www.certifiedsafemoney.com CSM202101ANNUITIES

Annuities, however, do not pose an annual maximum contribution amount. So, even if you have made the maximum contribution to your IRA or 401(k) in a given year, contributing to an annuity will allow you to add to your tax-advantaged savings. In turn, an annuity can also enhance the amount of income you receive in the future. Depending on the annuity, there are typically several different income options that you can choose from if you opt to “annuitize” (i.e., convert the annuity over to an income stream). These may include the following: - Life Only – The life-only option will continue to pay income for as long as the annuitant lives (the annuitant is the person on whose life the income is based). The lifeonly option can alleviate concerns about running out of income when needed, leading to a worry-free retirement. - Period Certain – With the period-certain option, the annuity will pay income for a predetermined length of time, such as 20 years. After that time, the income from the annuity will stop. If the annuitant passes away before the period is up, the remaining payments will be made to a beneficiary. - Life with Period Certain – This annuity income alternative is often considered a “combination” of the period-certain and the life-only income options. Here, for instance, income will continue for the remainder of the annuitant’s lifetime. However, if he or she dies before a set period of time – such as 10 or 20 years – payments will continue to be made to a named beneficiary until the preselected period has passed. - Joint and Survivor – This annuity payout allows two individuals, such as a husband and wife, to count on income to continue until the second individual’s death. In some cases, the dollar amount will be reduced at the first person’s death, and in other instances, the amount will remain the same. The money in an annuity doesn’t necessarily have to be converted into an income stream. It can instead be withdrawn as a lump sum. If you go this route, the tax on any previously untaxed dollars will be due in the withdrawal year. 10 [email protected] www.certifiedsafemoney.com CSM202101ANNUITIES

TYPES OF ANNUITIES While all annuities have some similar features, there are many different types of annuities available in the marketplace today. Therefore, you should be sure to get a clear understanding of each annuity type so that you can find one that best fits your specific objectives. IMMEDIATE VS. DEFERRED ANNUITY One way to differentiate annuities has to do with when they start making income payments. For instance, immediate annuities will typically begin making income payments within one to 12 months after purchase. Retirees looking to convert their savings and investments into a regular income stream right away often purchase immediate annuities. Deferred annuities have two “phases.” Throughout the accumulation phase, one or more contributions may be made. The funds in the annuity are allowed to grow on a tax-deferred basis. During the income or annuitization phase, income can be received regularly for a predetermined period or the annuitant’s (i.e., the income recipient’s) lifetime, regardless of how long that may be. Another way to categorize annuities is by the way that they generate a return. In this case, annuities can be Fixed, Indexed, or Variable. 11 [email protected] www.certifiedsafemoney.com CSM202101ANNUITIES

FIXED ANNUITIES Fixed annuities are considered a safe investment. They offer a stated rate of return, and growth takes place tax-deferred. These financial vehicles are primarily known for their safety and guarantees. Because of that, fixed annuities can be a good option for those who are risk-averse. In return for their safety and protection, the rate of return on a fixed annuity can be lower than riskier investments. Often, fixed annuity rates are a little higher than CDs, and fixed annuities grow taxdeferred until withdrawn – which could be years in the future. Fixed annuities can also pay out a regular stream of income for a set period – such as 10 or 20 years – or for the remainder of the annuitant’s life. This can provide for a worry-free retirement because ongoing income is a certainty. In addition to their set rate and safety, fixed annuities may also offer some added features, such as a death benefit or penaltyfree withdrawals if the owner is diagnosed with a terminal illness or needs long-term care services. Another version of fixed annuities is the multi-year guarantee annuity or MYGA. With a MYGA, you can lock in a set rate of interest for a certain period, such as three, five, seven, or ten years. The surrender charge period on MYGA annuities typically corresponds with the interest rate guarantee period. In most cases, this type of product offers you the ability to withdrawal a penalty-free 10% of the contract’s value each year during the guarantee period. Once your guarantee period has elapsed, you have the option of renewing for another guaranteed time frame, or you can take your funds out of the MYGA annuity altogether without incurring a surrender charge. Regular fixed annuities and MYGA annuities can be enticing for those seeking the safety of principal or a reliable income stream in retirement. But even with these excellent benefits, there can also be potential drawbacks to consider. For instance, the returns are typically relatively low with fixed annuities. So, it can be challenging to beat inflation with these financial vehicles. This can be harmful to future purchasing power. Fixed annuities also usually impose a surrender charge. So, while you are typically allowed to withdraw up to 10% of the contract’s value each year, during the surrender period, if you have an emergency and you need to withdraw more – or if you have to cancel the annuity altogether – you could be penalized. Further, if you make such withdrawals before you have reached the age of 59 ½, you may incur an additional 10% “early withdrawal penalty” from the IRS. Given that, fixed annuities are not considered liquid investments – at least not until the surrender charge period has elapsed. 12 [email protected] www.certifiedsafemoney.com CSM202101ANNUITIES

Fixed Annuity Advantages Fixed Annuity Drawbacks Safety/principal protection Low rate of return Simplicity Surrender charges Guarantees May not offer inflation protection Tax-deferred growth Limited liquidity May provide a death benefit May offer penalty-free access to funds in certain circumstances Pros and Cons of Fixed Annuities 13 [email protected] www.certifiedsafemoney.com CSM202101ANNUITIES

FIXED INDEXED ANNUITIES Fixed indexed annuities, or FIAs, are a type of fixed annuity, with the primary difference being how the FIA determines its return. For example, fixed indexed annuities track one or more market indices, such as the S&P 500. When the underlying index performs well during a given contract year, the annuity receives a positive return, usually up to a stated “cap.” But, when the underlying index goes down during a given contract year, the annuity will not lose value. Instead, the account is credited with a guaranteed minimum (usually in the range of 0% to 2%). There are different types of interest crediting methods that you may find with fixed indexed annuities. These options determine how the interest changes will be measured in the account. These will usually include a combination of: - Caps – A cap is the maximum amount of interest allowed to be credited in a given period. For instance, if the annuity imposes a 5% cap and the underlying index generates an 8% return in a contract year, the annuity will be credited with a 5% return. - Participation Rates – The participation rate is the percentage, or fraction, of interest credited for a specific time frame. In this case, if the annuity imposes a participation rate of 80%, and the underlying index returns 10% for a given contract year, the annuity will be credited with a return of 8% (because 80% of 10% is 8%). It is important to note that some fixed indexed annuities may impose caps and participation rates and spreads. - Spreads – A spread is a percentage that may be deducted from the gain in the underlying index (or indexes). For instance, if the underlying index gained 10% in a given period, and the annuity has a spread of 4%, then the gain credited to the account would be 6% (because 10% minus 4% equals 6%). While all of these fixed indexed annuity crediting methods can limit the annuity’s upside potential, the “tradeoff” is that you won’t lose value if the tracked index or indexes perform in the negative. This is the case even in periods of substantial market loss, such as during the recession of 2008 and the COVID-19 pandemic, and the corresponding market downturn that occurred in early 2020. Other benefits may be included in a fixed indexed annuity. For instance, many of these financial vehicles have a death benefit. Suppose the annuitant (i.e., the income recipient) dies before receiving back all of their contributions into the annuity. In that case, the remaining funds will be paid out to a named beneficiary. (The tax treatment of these benefits differs from life insurance death benefits in that the funds from the annuity are not received income tax-free.) There may also be a nursing home or terminal illness waiver on a fixed indexed annuity, so if the annuitant has to reside in a nursing home facility (usually for at least 90 days) or they are diagnosed with a terminal illness, some – or even all – of the annuity’s account value may be accessed free of a surrender penalty. 14 [email protected] www.certifiedsafemoney.com CSM202101ANNUITIES

The growth in a fixed indexed annuity is taxdeferred, so there is no tax due on the gain until the time of withdrawal. These annuities will also provide different income options, including one that will continue to pay out for the rest of the annuitant’s life. Therefore, fixed indexed annuities can offer a win-win-win scenario because your funds may grow more than those in a regular fixed annuity. Still, there is no downside risk regardless of what happens in the market – plus, it can provide you with an income you can count on for life. Fixed Indexed Annuity Advantages Fixed Indexed Annuity Disadvantages Market linked growth Caps, participation rates, and/or spreads could reduce the growth potential. Principal protection (even in a downward-moving market) Surrender charges Tax-deferred earnings Limited liquidity May offer a death benefit Can be complicated to understand May offer penalty-free access to funds in certain situations Income that cannot be outlived Pros and Cons of Fixed Indexed Annuities 15 [email protected] www.certifiedsafemoney.com CSM202101ANNUITIES

VARIABLE ANNUITIES Variable annuities are not considered safe money investments. Instead, variable annuity returns are based on underlying investments such as stock-based mutual funds or other various options. (Your funds are invested through the insurance carrier’s “sub-accounts” and not directly in the market.) As with other types of annuities, the money inside a variable annuity is also allowed to grow tax-deferred. This can provide the opportunity for significant growth in the account – especially if the investments are performing well. Unlike a fixed indexed annuity, there are not typically any “caps” or maximums in terms of growth potential in a variable annuity. However, there is the potential for loss if the underlying investments perform poorly. So, variable annuities can be riskier than fixed, fixed indexed, and multi-year guarantee annuities. Additional benefits, or riders, may be added to a variable annuity that offers certain guarantees such as income, interest credits, and distributions. As with other types of annuities, variable annuities typically offer a variety of income payout options, as well as a death benefit that can be paid to a named beneficiary. Variable Annuity Advantages Variable Annuity Disadvantages Unlimited upward return Risk of lost principal Tax-deferred growth High fees No contribution limits Income benefit riders can be costly May offer a death benefit Pros and Cons of Variable Annuities DEFERRED INCOME ANNUITIES (LONGEVITY ANNUITIES) Another type of annuity is the deferred income annuity or DIA. Deferred income annuities – which are also commonly referred to as longevity annuities – can provide you with a guaranteed lifetime income that starts at a future date, up to thirty or forty years in some cases. A deferred income annuity, or DIA, works similarly to an immediate annuity – other than the fact that the income payments do not begin immediately (or even within twelve months of purchasing the annuity). 16 [email protected] www.certifiedsafemoney.com CSM202101ANNUITIES

Deferred Income Annuity Advantages Deferred Income Annuity Disadvantages Deferred Income Annuity Disadvantages Higher-income potential Income begins far in the future Income for life May lose principal if death occurs before income begins. Higher return potential Must choose a predetermined income start date Principal protection No account management or maintenance charges Pros and Cons of Deferred Income Annuities (DIAs)/Longevity Annuities The income payments from a deferred income annuity (DIA) can often be much higher than those of an immediate annuity. One reason for this is because the annuitant’s life expectancy is typically shorter due to the income payments not starting until later in his or her life. Some insurance companies that provide deferred income annuities also offer various riders that help you design a product that more closely fits your needs. These riders may include benefits that increase your guaranteed income and ways to keep your purchasing power intact, providing you with a hedge against inflation. 17 [email protected] www.certifiedsafemoney.com CSM202101ANNUITIES

COMPARING THE DIFFERENT ANNUITY TYPES There are many types of annuities, so there isn’t just one that is the right choice for all investors and retirees across the board. Therefore, you must determine your short- and long-term financial goals first and then match up which annuity type – if any – may be the best for you. In narrowing down the right annuity for your particular needs, there are some key questions to ask yourself, such as: - Do I need income right away or in the future? - Do I have a shorter or longer life expectancy? - Am I looking for a way to increase my taxadvantaged saving or investing? - Am I comfortable taking on significant market risk or more interested in protecting the principal of my investments? Fixed Annuities Fixed Indexed Annuities Variable Annuities Protection of Principal Yes Yes No Guaranteed Income for Life Yes Yes No Minimum Interest Guarantee Yes Yes No Downside Market Risk No No Yes Guaranteed Prior Earnings Yes Yes No Management Fees No No Yes Registered as a Security No No Yes Comparing the Different Types of Annuities 18 [email protected] www.certifiedsafemoney.com CSM202101ANNUITIES

WITH THAT IN MIND, YOU MAY BE AN IDEAL CANDIDATE FOR A FIXED ANNUITY IF YOU ARE: - Concerned about losing principal - Uncomfortable with a volatile stock market - Comfortable with a lower rate of return in exchange for the added safety - Looking for a way to receive a set amount of income for life A FIXED INDEXED ANNUITY MAY BE A GOOD OPTION FOR YOU IF YOU: - Want the opportunity for a higher amount of return, but without the risk of loss in a downward-moving market - Want to generate more tax-deferred savings - Are looking for a way to generate guaranteed lifetime income in retirement A VARIABLE ANNUITY COULD BE A GOOD ADDITION TO YOUR PORTFOLIO IF YOU: - Want to add to your tax-advantaged savings and investments, and you have already “maxed out” your retirement plan and IRA contributions for the year - Are comfortable with added risk in return for the possibility for higher growth - Are seeking another potential income source in retirement 19 [email protected] www.certifiedsafemoney.com CSM202101ANNUITIES

ANNUITIES AND TAXES Like other investment vehicles, it is essential to know how taxes come into play with annuities. In this case, while the growth inside all annuities is tax-deferred, there can be some vast tax-related differences in other areas. Therefore, knowing the difference between qualified and nonqualified annuities is essential. QUALIFIED ANNUITIES Qualified annuities are funded with pre-tax dollars, meaning that you can deduct the contribution from your earnings on your federal income tax return. The annuity grows on a tax-deferred basis, so no tax is due on the gain inside the annuity until withdrawal. At that time, 100% of your income or withdrawals from the qualified annuity are taxed at your then-current income tax rate because none of these funds have yet been subject to taxation. Retirees will often fund a qualified annuity by “rolling over” money from an employersponsored savings plan like a 401(k) or with funds from a personal IRA (Individual Retirement Account). So overall, some of the primary advantages you can receive with qualified annuities may include: - Premium payments / initial contributions made with pre-tax dollars - Contributions and earnings can grow taxdeferred - May be able to “roll” significant funds from an IRA or employer-sponsored retirement account into the annuity NON-QUALIFIED ANNUITIES If you have a non-qualified annuity and choose to annuitize the product, the income you receive will only be partially taxable during the income phase. That’s because each payment will consist of part of your principal’s gain and partial return. A non-qualified annuity is funded with aftertax dollars. The money that accrues inside of a non-qualified annuity is also allowed to grow tax-deferred. So, there is no income or capital gains tax due on the growth until the money has been withdrawn. When money is withdrawn from a nonqualified annuity, part of it will be non-taxable (as a return of your original contribution), and another part, the growth, will be taxable. The percentage of the non-taxable portion is known as the exclusion ratio. Any return above the exclusion ratio is subject to taxes. 20 [email protected] www.certifiedsafemoney.com CSM202101ANNUITIES

So, the exclusion ratio represents the percentage of your annuity income that is not subject to taxes. This ratio is the percentage with a dollar amount equal to the payback on the initial investment. (Any return that is above the exclusion ratio, though, is subject to taxation.) Once all of your original principal has been returned to you in the form of annuity income, the entire income payment going forward will be taxable. Unlike a qualified account, such as an IRA or 401(k), there are no annual maximum contribution limits with a non-qualified annuity. So, if you have already “maxed out” your yearly funding with these types of accounts, you can continue adding to a nonqualified annuity, and in turn, keep building up your tax-deferred savings. (It is important to note that the insurance company you purchase an annuity through may have stated minimum and maximum contribution limits.) With that in mind, some of the key benefits you can get with a non-qualified annuity include: - Tax-deferred growth of earnings inside the account - Part of your income/withdrawals will be free of income tax - No required minimum distribution (RMD) - No annual maximum contribution limit Qualified Annuity Non-Qualified Annuity Contributions Pre-tax After-tax Growth in the account Tax-deferred Tax-deferred Taxation of withdrawals Usually 100% taxable Gain is taxable, and return of principal is non-taxable Maximum contribution Yes No (but can depend on the offering insurance company’s limitations, if any) Required distributions Yes (at age 72) No Qualified vs. Non-Qualified Annuities 21 [email protected] www.certifiedsafemoney.com CSM202101ANNUITIES

PUTTING IT ALL TOGETHER Even the most basic of annuities can have a number of “moving parts,” in turn, making these financial vehicles somewhat complicated. However, an annuity could help you reach your short- and long-term financial goals. It could also help alleviate the concern about running out of money before “running out of time,” – which is a significant worry for many retirees (and even those preparing for retirement). With that in mind, talking over your financial objectives with a financial professional specializing in safe money investments can help you narrow down your best options. HAVE QUESTIONS ABOUT ANNUITIES? VISIT www.certifiedsafemoney.com FOR MORE INFORMATION AND TO FIND THE BEST-RATED RETIREMENT SPECIALIST NEAR YOU. Regulatory Disclosure. All investments, retirement, and estate planning strategies (collectively “Strategies”) have inherent risks. Content is not personalized financial advice and should not be regarded as a complete analysis of the subjects discussed. All expressions of opinion reflect the judgment of the author on the date of publication and may change in response to market conditions. Although the information has been gathered from sources believed to be reliable, we do not guarantee its accuracy or completeness. There can be no assurance that you will achieve your goals if you implement any of the Strategies discussed. Past performance does not guarantee future results. Indexed universal life insurance may not be suitable for you depending upon your investment objectives, risk tolerance, financial situation, and liquidity needs. Accessing policy cash value through loans and surrenders may lead to a permanent reduction of the policy’s cash value and death benefit, which may lead to a potential lapse of the policy. Insurance product guarantees are subject to the claims-paying ability of the issuing company. There may be tax penalties for distributions prior to age 59½. Working with a highly-rated professional does not ensure that you will experience a higher level of performance. Professional awards do not guarantee future investment success. Please contact the professional for more information regarding the criteria for any recognition or rankings noted. Ratings can be based on client evaluations and the professional’s activity. Hyperlinks in this Booklet are provided as a convenience. Neither the information in this Booklet nor any option expressed herein constitutes an offer to sell or solicit any person to purchase any security or product. Investment decisions should not be made based on information in this Booklet. Individuals should rely exclusively on the offering material provided to them by a licensed professional or regulated entity when considering whether to invest. Usage of this Booklet requires your acknowledgment that you shall hold CertifedSafeMoney.com, Financial Media & Marketing, LLC, and its Officers, Directors, Employees, or Agents (collectively “FMM”) harmless. In addition, you specifically acknowledge and agree that no oral or written information or advice provided by FMM (Including without limitation its call center representatives) will (I) constitute legal or financial advice or (II) create a warranty of any kind concerning this Booklet or the services found on any website(s) related to or owned by FMM, and users should not rely on any such information or advice. FMM disclaims all representations and warranties of any kind, express, implied, statutory, or otherwise, to you and/or any other party, including, without limitation, any warranties of accuracy, timeliness, completeness, efficacy, merchantability, fitness for any particular purpose, and usefulness of the content provided. FMM shall have no tort, contract, or any other liability to you or any other users of content from this Booklet and/or to any other party. FMM shall not be liable to you and/or any other party for any lost profits or lost opportunities or any indirect, special, consequential, incidental, or punitive damages whatsoever arising out of or relating to the use of this Booklet, even if FMM has been advised of the possibility of such damages. Tax and legal information provided is general in nature and should not be construed as legal or tax advice, and it is not a substitute for your independent research and evaluation of any issue. If specific legal or other expert advice is required or desired, the services of an appropriate, competent professional should be sought. The firm is not engaged in the practice of law or accounting. Always consult an attorney or tax professional regarding your specific legal or tax situation. 22 [email protected] www.certifiedsafemoney.com CSM202101ANNUITIES

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