Qualified Annuities, 403-B Plans, Tax-Sheltered Annuities
MR. WATSON: All right guys, looky here. If you looked in the Internal Revenue Code book you'd see something called a 501-C 3. Ask me what that "3" stands for.
WOMAN: What's that "3" stand for?
MR. WATSON: Means there's three of them. Ask me what the "C" stands for.
WOMAN: What's the "C" stand for?
MR. WATSON: Charitable organizations- 501 C 3.
MR. WATSON: There's three types of charitable organizations:
- teachers,
- preachers,
- nonprofit organizations.
MR. WATSON: These guys can have this here, a 403(b) plan. Ask me what that "B" stands for. That stands for before-tax annuity. All annuities up to this point were funded with after tax dollars.
MR. WATSON: But teachers, preachers, and nonprofit organizations can have a before-tax annuity, called a tax-sheltered annuity . That means the money going in is tax deductible, before tax. For profit businesses give their employees a 401k plan for retirement, these folks get a 403b. For our purposes, it’s the exact same thing as a 401k, but it’s for 501c3 organizations - teachers, preachers and non-profits. Got it?
ALL: Got it.
MR. WATSON: How much is going to be taxed when they take it out? 100 percent of it is going to be taxed when it comes out because nothing was taxed on the way in..
MR. WATSON: Guys, it's a retirement plan. If you didn't pay taxes going in, you're going to pay taxes when it comes out. Does everybody agree with that?
ALL: Yes.
MR. WATSON: Now I will show you something else. Up to this point we have been talking about fixed annuities. In a fixed annuity, the principal is guaranteed. The interest that it is earning is guaranteed. The payout is guaranteed. Everything with a fixed annuity is guaranteed. Y'all agree?
ALL: Yes.
MR. WATSON: That $10,000, or the amount you get per month, never changes. Do we agree with that?
ALL: Yes.
MR. WATSON: It never changes. What's the problem with that?
MAN: It doesn't account for inflation.
MR. WATSON: Who regulates a fixed annuity?
ALL: The state. The Office of Insurance Regulation.
MR. WATSON: Yes, the Office of Insurance Regulation or Department of Insurance, or whatever your state calls it.. What's it invested into?
MAN: Bonds. Mortgages. Fixed rates of return.