Slide 5 of 18
When assessing retirement income sources, the Investment Company Institute (ICI) breaks down U.S. retirement assets into five categories—IRAs, defined-contribution plans, government plans, defined-benefit plans, and annuities. Retirement assets total $24.2 trillion, or 36% of all household financial assets. Put another way, Americans have allocated roughly one out of every three dollars to retirement. Contributions to traditional IRAs may be fully or partially deductible, depending on your circumstance.
Distributions from defined-contribution plans and traditional IRAs are taxed as ordinary income and, if taken before age 59½, may be subject to a 10% federal income tax penalty. Generally, once you reach age 70½, you must begin taking required minimum distributions. To qualify for the tax-free and penalty-free withdrawal of earnings, Roth IRA distributions must meet a five-year holding requirement and occur after age 59½. Tax-free and penalty-free withdrawal also can be taken as a result of certain other circumstances, such as the owner’s death. The original Roth IRA owner is not required to take minimum annual withdrawals.
Annuities have contract limitations, fees, and charges, including account and administrative fees, underlying investment management fees, mortality and expense fees, and charges for optional benefits. Most annuities have surrender fees that are usually highest if you take out the money in the initial years of the annuity contact. Withdrawals and income payments are taxed as ordinary income. If a withdrawal is made prior to age 59½, a 10% federal income tax penalty may apply (unless an exception applies). The guarantees of an annuity contract depend on the issuing company’s claims-paying ability. Annuities are not guaranteed by the FDIC or any other government agency. The earnings component of an annuity withdrawal is taxed as ordinary income and, if taken before age 59½, may be subject to a 10% federal income tax penalty. The guarantees of an annuity contract depend on the issuing company’s claims-paying ability. Annuities have fees and charges associated with the contract, and a surrender charge also may apply if the contract owner elects to give up the annuity before certain time-period conditions are satisfied.
Source: Investment Company Institute, 2015