Annuities: Understand the Basics
Annuity Basics
What is an Annuity:
Understanding the Basics
An annuity is essentially an agreement between an individual and an insurance provider. A predetermined amount of money that you contribute accrues interest over a predetermined length of time. After that, you’ll begin receiving payments. You may be able to receive payments from an annuity for the rest of your life. You are also able to choose whether you would like payments to be made on a monthly, quarterly, or annual basis. Additional information, such as the crediting method used to calculate the interest rate, varies amongst various types of annuities and individual contracts.
What is a Fixed Indexed Annuity?
One type of annuity product can offer the possibility for indexed interest at a reasonable rate of return,** and the advantage of safeguarding your money.* A fixed indexed annuity, or FIA, is protected by the issuing insurance company while earning interest based on the performance of an index at a reasonable rate of return.** Although an FIA’s interest rate is based on an index, it is crucial to note that it is not an investment. This is important because it will not lose value if the index declines. Your annuity’s cash value will remain protected no matter what happens in the stock market.*
More About Annuity Basics
Annuities and Taxes
Annuities have tax-deferred growth.
This means you only pay taxes on the money in your annuity when you withdraw it, in contrast to certain retirement plan account types that tax your interest. There might be further tax advantages, too. For example, you might be able to defer paying taxes on a lump sum payout you got from an employer-issued 401(k) by transferring the funds into an annuity instead. Of course, for quandaries like this, it’s recommended that you consult a qualified tax advisor.