Annuity 101-More on Annuities
Another large part of understanding annuity 101 is knowing that there are
many kinds of annuities - some are tailored for income, some for future
growth, and some as savings tools that are dependent on your income and
needs. Typically, when you are talking structured settlements, you are
talking about fixed, tax-deferred or no-tax annuities. This is where the
insurance company is given a lump sum of money, and it grows on a
tax-deferred or no-tax basis. These annuities can be great because you
don't pay any taxes on the earnings or profits that are built up in the
annuity until the money is taken out or in a structured settlement
situation, not at all.
The Tax Advantage Intended by Congress
Through the Internal Revenue Code, congress intended to subsidize victims
by excluding from gross income the amount of damages (except for punitive)
in a case involving personal injury or physical sickness, codified at 26
U.S.C. §§ 104(a)(2), as an incentive for that individual or his or her
guardian to elect guaranteed future periodic payments rather than a lump
sum, which could be dissipated rapidly, causing the injury victim
ultimately to become a ward of society. A structured settlement annuity is
certainly a special gift from congress to injury victims, not to insurance
companies.
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