What is an annuity?
An annuity is a tax deferred savings account issued by a financial advisor at an insurance company. So what are the does this mean to you? Well with an annuity, the principal return is tax-deferred, and you will only pay taxes upon withdrawal of funds. So as your saving – you pay no taxes! The result over the long-term is more cash available to earn interest.
When you are ready to withdraw your annuity funds, you may choose to receive a pay out option of guaranteed income. Depending on the payout option you choose, you may receive either fixed or variable amounts for a range of time. Once your pay out income begins, you will pay taxes only as funds are paid to you. This offers more security and more funds in your account to earn interest.
There are fees and expenses associated with an annuity. These vary depending on the annuity and may include the following types of charges: administration fee, contract fee, mortality and expense risk fee, and a withdrawal fee. Check with your annuity financial planner to find out the fees you may occur.
With an annuity you may elect to accumulate annuity dollars in one of two ways. If you prefer a fixed rate of return, you may opt for a fixed rate annuity. Or, if you are interested in the growth potential of investing in the stock and bond market, you may select a variable annuity. In terms of access to these funds, you may elect an immediate or deferred pay out Generally, once you begin receiving annuity payments, you cannot change the method or frequency of the payments.
Another important feature of some annuities is the death benefit provision, a feature inherent in most every annuity in one degree or another. The annuity issuer guarantees at a minimum that upon your death your total premiums are paid to your beneficiaries.
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