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As you plan for your retirement in New York, an annuity can be a great addition to your financial portfolio.
While New York is not generally considered a tax-friendly state, it provides greater protection for annuity buyers compared with most states. This impacts the products that can be sold, their benefits to consumers and the companies that sell them.
If you live in New York, or you plan to move to the state soon, it’s important to consider the state-specific rules that can impact your annuity.
Buying an Annuity in New York
The annuity you purchase should be approved for sale in New York if you are buying it in the state.
“Annuity products approved for sale in New York generally provide greater consumer protections than products sold elsewhere,” according to the New York State Department of Financial Services. “The minimum account values are higher, charges are lower and annuitization and death benefits are more favorable.”
If an agent suggests that you purchase an annuity from another state or sign an application outside of New York, be careful — you would not be subject to the same protections and benefits.
In New York, insurance companies offer four types of accumulation annuities. Each type differs in how the contracts credit investment income.
- Excess Interest Annuity
- An excess interest annuity has a fixed minimum interest rate over the life of the contract, typically ranging from 1 percent to 3 percent. Providers can allow discretionary excess interest, or adjusted rates, based on market earnings.
- Modified Guaranteed Annuity (MGA)
- An MGA has a guaranteed principal with a fixed interest rate throughout a specific timespan. The MGA buyer can choose a guarantee period offered by the insurance company, often ranging between three to 10 years.
- Equity Indexed Annuity (EIA)
- An EIA has a minimum interest rate floor, and it allows for potentially higher gains. This annuity type can credit additional interest if there are gains in its associated market index, such as the S&P 500.
- Variable Annuity
- Unlike the first three types, variable annuities’ accumulation is based on the performance of underlying investments. While variable annuities may allow for higher returns, the annuity owner assumes the risk of market volatility.
Annuity Providers in New York
Annuity companies must be specifically licensed in the state to issue products in New York. The licensing body, the New York State Department of Financial Services, deems the providers as capable and trustworthy.
To confirm that your company is licensed in good standing in the state, you can use the New York State Department of Financial Services Company Search. You can also review the provider’s credit rating to help assess its financial strength and ability to pay claims.
Retirement Income Taxes in New York
As you pursue your financial goals, you should consider the taxation rules that impact your state — and your funds.
New York state income tax ranged between 4 percent and 10.9 percent in 2021, while New York City and Yonkers assess their own income tax.
- Social Security benefits
- Federal and New York government pensions
- Military retirement plans
- Railroad retirement benefits
- Federally taxed income from private retirement plans, including annuities, 401(k) and IRA plans
- Government plans from another state
Any income over $20,000 from a private retirement plan or an out-of-state government plan is subject to tax.
While some states impose a state premium tax on annuities, New York currently does not.
Annuity Regulations in New York
Compared with other states, New York is known for its heightened protections and enhanced benefits for consumers who purchase annuities.
New York mandates a free look period of 10 days to 30 days, so annuity buyers have the chance to thoroughly review their contracts and cancel without penalty, if needed.
Once you own the annuity, it is subject to rules to help maximize your benefits. For example, annuities that accumulate funds over time maintain an account value, and New York has set standards to calculate this value — including maximum charges and minimum interest — for the benefit of the owner.
Also, death benefits in New York are not considered surrenders. Thus, the benefits are not subject to surrender charges.
Are Annuities Protected from Creditors in New York?
Annuities are generally protected from creditors in the state — if the contract type aligns with the terms of the related New York statute.
On behalf of the New York State Insurance Department, the Office of the General Counsel provided an informal opinion:
“Yes; under N.Y. Ins. Law § 3212(d) (McKinney 2000) the proceeds of an annuity contract are, to the extent specified therein, protected from creditors.”
What Is the Life Insurance Company Guaranty Corporation of New York?
The Life Insurance Company Guaranty Corporation of New York serves as a safety net for annuity buyers. In the unlikely event that an annuity provider defaults on payments, state guaranty associations can cover claims up to the state-determined limits.
“Generally, immediate and deferred annuity contracts issued to a New York resident by a licensed life insurance company that provide fixed benefit guarantees are covered by the Life Insurance Company Guaranty Corporation of New York for up to $500,000,” according to the New York State Department of Financial Services.
This means that the Guaranty Corporation could cover up to $500,000 of the present value of your annuity if your New York-licensed company becomes insolvent. This applies to individual contracts for annuities purchased in New York if you were a resident at the time of purchase. If you move out of the state, you may be eligible for protection in your new state in coordination with New York’s limits.
However, the benefit limit increases to $1 million for a group annuity that does not guarantee benefits to a specific individual in the contract.
Other Resources for New York Annuity Buyers
New York annuity regulations can be complicated, but help is available. The following organizations can help answer your questions about annuities in New York.
- Life Insurance Company Guaranty Corporation of New York
- The Guaranty Corporation website shares the details of New York consumer coverages and protections.
- New York State Department of Financial Services
- The New York State Department of Financial Services provides annuity product-specific information and a company search portal, which you can use to confirm that a company is licensed in New York. The site also provides an outline of policyholder protections and a glossary of terms.
- New York State Department of Taxation and Finance
- The New York State Department of Taxation and Finance website has tax filing links for New Yorkers and helpful tax information for retirees.
6 Cited Research Articles
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- Kiplinger. (2020, December). New York State Tax Guide for Retirees. Retrieved from https://www.kiplinger.com/kiplinger-tools/retirement/t055-s001-state-by-state-guide-to-taxes-on-retirees/index.php?map=&state_id=33&state=New%20York
- Life Insurance Company Guaranty Corporation of New York. (n.d.). Frequently Asked Questions. Retrieved from https://www.nylifega.org/FAQ
- National Organization of Life & Health Insurance Guaranty Associations. (2021, April 23). Benefit Limits – State Comparison Report. Retrieved from https://www.nolhga.com/factsandfigures/main.cfm/location/lawdetail/docid/8
- New York State Department of Financial Services. (n.d.). Annuity Products in New York. Retrieved from https://www.dfs.ny.gov/consumers/life_insurance/annuity_products
- New York State Department of Financial Services. (n.d.). Guaranty Fund Protection in New York State. Retrieved from https://www.dfs.ny.gov/consumers/life_insurance/policyholder_protection_and_the_licgc
- New York State Department of Taxation and Finance. (n.d.). Information for retired persons. Retrieved from https://www.tax.ny.gov/pit/file/information_for_seniors.htm