SIE Annuities, Retirement Accounts & Alternative Investments

Fixed vs. Variable Annuities

FIXED: Insurance company guarantees contractual payments or credited rates. Insurer bears investment risk; owner has insurer credit risk.

VARIABLE: Money invested in separate account subaccounts. Owner bears investment risk; payments or account value fluctuate.

Annuity Phases

ACCUMULATION: Money is contributed and grows tax-deferred.

ANNUITIZATION: Contract value is converted into a stream of payments.

Immediate annuity: Payments generally begin within 12 months.

Deferred annuity: Payments begin later.

Traditional IRA

Retirement account funded with earned income, subject to eligibility and annual limits.

• Contributions may be tax-deductible

• Earnings grow tax-deferred

• Withdrawals generally taxed as ordinary income

• RMDs generally begin at age 73 under current law

Roth IRA

Funded with after-tax contributions.

• Contributions not deductible

• Qualified withdrawals are tax-free

• No lifetime RMDs for original owner

• Qualified earnings withdrawal generally requires 5-year rule and age 59½ or another qualifying condition

401(k) vs. 403(b) vs. 457

401(k): Employer-sponsored plan commonly offered by private-sector employers.

403(b): For public schools and certain tax-exempt organizations.

457(b): Deferred compensation plan for state/local government and certain tax-exempt employers.

All may offer tax-deferred retirement saving.

SEP IRA

Simplified Employee Pension.

• Retirement plan for self-employed individuals and small businesses

• Employer makes contributions to employee SEP IRAs

• Contributions generally tax-deductible to employer

• Traditional SEP IRA distributions generally taxable

SIMPLE IRA

Savings Incentive Match Plan for Employees.

• Designed for eligible small employers

• Employees can defer salary

• Employer contributions required

• Early withdrawals within first 2 years can face a 25% additional tax, if applicable

529 Education Savings Plan

Tax-advantaged education savings program.

• After-tax contributions

• Tax-free growth and qualified withdrawals

• Qualified uses include eligible education expenses

• Account owner generally controls the account

• Investment options depend on the plan

Coverdell Education Savings Account

Education savings account.

• Annual contribution limit: $2,000 per beneficiary, subject to income limits

• Qualified K–12 and higher education expenses

• Tax-free qualified withdrawals

• Contributions generally stop at age 18; special-needs exceptions

ABLE Account

Tax-advantaged savings account for eligible individuals with disabilities.

• Qualified disability expenses

• Tax-free qualified distributions

• Eligibility generally requires disability onset before age 46 beginning in 2026

• Designed to help preserve eligibility for certain public benefits

Direct Participation Program (DPP)

Investment structure that passes income, losses and tax consequences through to investors.

• Often limited partnerships

• Generally illiquid

• Limited partners have limited liability

• Passive activity loss restrictions may apply

General vs. Limited Partner

GENERAL PARTNER: Manages business and has unlimited personal liability.

LIMITED PARTNER: Usually passive investor; liability generally limited to investment; does not ordinarily manage day-to-day operations.

REIT (Real Estate Investment Trust)

Company investing in income-producing real estate or real estate-related debt.

• Equity REIT: Owns properties

• Mortgage REIT: Invests in real estate debt

• Qualifying REIT generally distributes at least 90% of taxable income

• Dividends generally not eligible for the usual qualified-dividend tax rate

Hedge Fund

Pooled investment vehicle using flexible strategies that may include leverage, derivatives and short selling.

• Often available only to eligible sophisticated investors

• May have high fees and limited liquidity

• Generally less regulated than registered mutual funds

Accredited Investor

Investor meeting regulatory financial or professional criteria for certain private offerings.

Individual financial tests include:

• Net worth over $1 million excluding primary residence, OR

• Income over $200,000 individually or $300,000 jointly in each of prior 2 years, with reasonable expectation of same this year.

Other qualifying paths also exist.