What is an Annuity

An annuity is a contract between you (the purchaser or owner) and an insurance company. In its simplest form, you pay money to an annuity issuer, and the issuer then pays the principal and earnings back to you or to a named beneficiary on a regular basis. Annuities can be guaranteed for the life of one or two individuals, or to protect principal guaranteed for a number of years to beneficiaries. Annuities are generally used to provide income in retirement.

Immediate Annuity

An immediate annuity allows you to convert a lump sum of money into an annuity so that you can immediately receive income. Payments start about a month after you purchase the annuity. This type of annuity offers financial security in the form of income payments for the rest of your life. In other words, you cannot outlive it. In addition, the payments can be for a period certain, which means payments will be made to a beneficiary if the annuitant(s) are no longer alive.

Immediate annuities allow you to:

• Supplement your current income. If you are nearing retirement, you may consider transferring another savings or investment account into an immediate annuity. You can also move the proceeds from a deferred annuity into an immediate annuity.
• Pay taxes only on the portion of your immediate annuity payments that is considered earnings. You are not taxed on the portion that is principal. The principal is the initial deposit made with funds that have already been taxed.

Flexible Premium Deferred Annuities

The minimum initial deposit for this annuity is $300.

The cash value is the accumulation at interest of all premiums less partial withdrawals.

The effective annual rate of interest is declared by the Board of Directors, is subject to change but may never be less than 3.5%.

Surrender charges are in effect for the first eight years, beginning at 8% and reducing by one percentage point each anniversary until phased out. Surrender charges are waived when a fixed settlement option is chosen.

Members may withdraw up to 10% per certificate year without penalties.

Rollovers are accepted.

Single Premium Deferred Annuities

The minimum lump sum deposit for this annuity is $3,000.

The cash value is the accumulation at interest of the single premium less partial withdrawals.

The effective annual rate of interest is declared by the Board of Directors, is subject to change but may never be less than 3.5%.

Surrender charges are in effect for first the eight years, beginning at 8% and reducing by one percentage point each anniversary until phased out. Surrender charges are waived when a fixed settlement option is chosen.

Members may withdraw up to 10% per certificate year without penalties.

Rollovers are accepted.

Important Questions and Answers on Single and Flexible Premium Deferred Annuities

What is an annuity?

Annuities are interest-earning contracts, issued and guaranteed by an insurance company. They offer competitive interest rates compared with other conservative investments, such as certificates of deposit (CDs), money market funds and traditional passbook savings. Unlike those alternatives, you don't pay taxes on the interest from your annuity until funds are withdrawn, so your money can grow faster.

What's the difference between a flexible and a single premium deferred annuity?

A single premium deferred annuity offers tax-deferred retirement income with a one-time, minimum $3,000 payment to be submitted with the application, while the flexible premium annuity consists of a series of periodic payments.

How much do I have to pay monthly?

There is no hard and fast rule. You decide when and how much to deposit but any deposits you make must be a minimum of $25.

What makes an annuity safe?

Fixed annuities involve less risk than other asset-building tools. The insurance company guarantees your principal, so you don't face the investment risk associated with the stock market, for example. Your state insurance department supervises insurance company operations within your state. Any insurance product, including annuities, must be filed with that department prior to its sale.

What about access to my money?

At any time prior to the maturity date, you may withdraw a portion of the cash value or surrender the certificate for its cash surrender value. The partial withdrawal must be at least $100, but not more than an amount which will leave a remaining cash value less than $300. During a certificate year, you may withdraw up to 10% of the cash value as of the beginning of that year, without a withdrawal charge.

You may return your annuity at any time for an amount equal to the purchase premium less withdrawals (if any), or the withdrawal value (annuity value less any early withdrawal charge), whichever is greater. For federal income tax purposes, withdrawals are considered to be earnings first, subject to ordinary income tax, and a return of principal after all earnings are exhausted. Withdrawals taken prior to age 59 1/2 may be subject to a 10% federal income tax penalty.

I thought annuities were tax-deferred?

They are. Interest on your HRFA Flexible or Single Premium Deferred Annuity is not subject to federal income tax until withdrawn. So long as your money remains in the annuity, it keeps growing.

How do I start collecting retirement income?

This is called "annuitization"--converting your annuity so it provides a regular stream of income. Basically, you decide when and how to receive payments, according to the specifics of your contract.

What if I have more questions?

We're always here to help. The HRFA and its agents are committed to providing you exceptional service and performance to help you secure a great retirement.

Your Earning Potential with a Tax-deferred Annuity

This chart illustrates the potential of tax-deferred earnings by comparing a tax-deferred annuity and a taxable investment. Assume an initial payment of $10,000 and an interest rate of 5% and, on the taxable investment, annual federal income tax payments at the 28% tax rate.

Neither the Hungarian Reformed Federation of America, nor any agents or representatives is authorized to give legal, tax or accounting advice. The information contained in this brochure summarizes the provisions of the single and flexible premium, tax deferred annuities and our understanding of current tax laws as they relate to it. Please refer to the policy for the actual governing contractual provisions. We suggest you consult your attorney, accountant or tax advisor on specific points of interest to you. The Hungarian Reformed Federation of America's Single and Flexible Premium Deferred Annuities are not available in all states.

Benefits under the policy may increase or decrease if the annuitant's age and/or sex have been misstated.
Interest rates can be higher than the stated minimum for some policies, depending on approval at the time of policy issue.

Please note: Deferred Annuity Applicants must be members of the HRFA. Applicants can submit a simultaneous application for life insurance.

Available life insurance policies to co-purchase with annuity: Current HRFA Whole Life/SPWL/Life Paid at 65/80 minimum: $2,000.00; current HRFA Twenty-Payment Life minimum: $5,000.00; current HRFA Annual Renewable Term minimum $25,000.00.