Glossary

Ordinary income treatment is the tax characterization under which the taxable portion of an annuity distribution is taxed at the contract owner's marginal ordinary income tax rates rather than at preferential long-term capital gains rates. Why it matters Ordinary income treatment is the rule that governs how the taxable portion of an annuity distribution is taxed, and it is independent of how those gains were generated inside the contract — whether through fixed interest, index cr

The owner versus annuitant distinction is the structural separation in an annuity contract between the contract owner — the person with the legal rights to control the contract, including rights of withdrawal, surrender, beneficiary designation, and ownership transfer — and the annuitant, the person whose life is the measuring life for any life-contingent payments under the contract. Why it matters In most annuity contracts the owner and the annuitant are the same individual, and

A participation rate is the percentage of an underlying index's gain that is credited to an indexed annuity contract over a specified crediting period. Why it matters The participation rate is one of three primary parameters that determine how much of an index's movement reaches the contract owner; the other two are the cap rate and the spread. Naming the participation rate distinctly is what makes it possible to characterize how an indexed annuity is actually charging for the str

Payout rate is the annual income an annuity contract pays expressed as a percentage of the premium or account value used to fund the income stream. Why it matters The payout rate is the simplest figure a contract owner can use to compare what an annuity will produce against what an alternative use of the same capital might generate. Two contracts with identical premiums and identical lifetime promises can quote different payout rates depending on age, gender, deferral period, and