An annuity is a long-term investment, issued by an insurance company that’s designed to deliver income in the future.
- Annuities can help you save more for retirement after you max out out other tax-favored investments.
- They can create an income stream guaranteed for life.
- Savings can grow tax-deferred.
- Annuities allow you to pass on assets to beneficiaries more easily and avoid probate.
There are two different payout timings for Annuities –
| Immediate Annuity (SPIA) | Deferred Annuity | |
|---|---|---|
| Primary Goal | Guaranteed income right away. | Accumulate savings for future income. |
| Payment Start | Within 30 days to 12 months. | Years or decades into the future. |
| Funding | Usually a single lump sum. | Lump sum or flexible periodic payments. |
| Best For | Retirees needing immediate cash flow. | Younger investors building a “nest egg”. |
For a Deferred Annuity, there are different strategies to grow your money.
| Annuity Type | Growth Mechanism | Risk Level | Upside Potential |
|---|---|---|---|
| Fixed (also known as MYGA) | Locked-in, guaranteed interest rate. | Lowest: Principal is safe from market loss. | Predictable but typically lower. |
| Fixed Indexed | Performance tied to a market index (e.g., S&P 500). | Moderate: Guaranteed floor (usually 0%) protects principal. | Balanced; higher than fixed but capped. |
| Variable | Direct investment in subaccounts (like mutual funds). | Highest: Value can go down if markets perform poorly. | Unlimited; potentially the highest returns. |
Reach out to us to select the appropriate Annuity.
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Fees and charges for Annuities –
There are fees that Insurers change for some type of Annuities like :
Contract fee – A flat dollar amount or percentage charged once or annually.
Percentage of purchase payment – A front-end sales load or other charge
deducted from each premium paid. The percentage may vary over time.
Premium tax – A tax some states charge on annuities. The insurer may subtract the amount of the tax when you pay your premium, when you withdraw your contract value, when you start to receive income payments, or when it pays a death benefit to your beneficiary.
Transaction fee – A charge for certain transactions, such as transfers
or withdrawals.
Underlying fund charges – Fees and charges on a variable annuity’s subaccounts; may include an investment management fee, distribution and service (12b-1) fees, and other fees.
Riders –
Some type of Annuities allow the addition of riders to enhance the value of an Annuity. These are –
Guarantee a lifetime income stream – This rider guarantees income for life even after regular withdrawals have commenced.
Tax Implications of Annuities –
Annuities receive special tax treatment at the federal level. Income Tax on Annuities is deferred till any withdrawals are made. This means that the investment and any returns continue to grow tax deferred until an income stream or withdrawal is made. Please consult your tax consultant for details on taxation.