Learn more about Fixed Indexed Annuities

Why an Annuity?

Learn exactly what an annuity is and how it can benefit you and your retirement planning needs.

What is an annuity?
An annuity is a contract between you and an insurance company, in which you give the company a sum of money (called a premium). This premium accumulates over time on a tax-deferred basis until you withdraw it from the annuity or begin taking a guaranteed income from the contract. This income can be for a specified number of years or guaranteed for life, which means you have a retirement income you cannot outlive.

What does ‘tax-deferred mean to me?
Under current federal and state law, fixed annuities are tax-deferred, which means you don’t have to pay any: taxes on the interest earned until you withdraw money from the contract. This benefit allows your money to grow faster because interest normally lost to taxes each year is left in the contract to earn more interest.

IRAs and qualified plans are already tax-deferred. Consider other annuity features.

What are the benefits of an annuity?
As mentioned above, you can earn interest on the money in your annuity contract without having to pay taxes while interest is accumulating tax-deferred. Only if you take money out of your contract will it be reported as income and become subject to taxation. When you do begin to withdraw money from your annuity, you may be retired, so your income tax rate may be lower.

Another benefit of an annuity is that death benefits pass directly to your beneficiaries, avoiding probate. With an annuity, you can choose which benefits best suit your personal needs and situation.

What if I need to withdraw money early from my annuity?
Most annuities allow you to withdraw a percentage of your value each year without surrender charges. However, there may be 10 percent IRS penalty for withdrawing interest earrings before age 59½. Full withdrawals or withdrawals that exceed the surrender-free portion may be assessed a surrender charge. You should always ask about such charges and fees before buying. So that there are no surprises later, if your annuity is an IRA or a qualified plan, once you reach age70½ you must begin taking a required minimum distribution.

What are index annuities?
An index annuity is a fixed annuity where interest crediting is linked to a financial index such as the S&P 500 index. Index annuities, like other fixed annuities, offer guarantees. These guarantees may include a minimum guarantee, surrender value, flexible withdrawal feature, income options, a death benefit and a minimum rate of interest. Index annuities also guarantee that your index credit rate can never be less than zero. This means that you still have safeguards. However, because index annuities are linked to an external financial index you also have the potential to earn more interest than you would with many fixed interest rate annuities.

Overall, annuities may be able to help you meet your long-term retirement needs.


Why do people buy annuities?

People typically buy annuities to help manage their income in retirement. Annuities provide three things:

  • Periodic payments for a specific amount of time. This may be for the rest of your life, or the life of your spouse or another person.

  • Death benefits. If you die before you start receiving payments, the person you name as your beneficiary receives a specific payment.

  • Tax-deferred growth. You pay no taxes on the income and investment gains from your annuity until you withdraw the money.

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