What types of annuities are there?
1. Fixed - Money in a fixed annuity earns a fixed rate of return tax-deferred from the life insurance company. You are guaranteed a fixed payout every month when you decide to begin receiving income.
Always check with your financial advisor regarding the consequences.
- Can be either a deductible or non-tax deductible contribution, with tax deferred growth and generally a taxable distribution (can be tax free in a Roth IRA).
- Fixed annuities offer a tax deferred fixed rate of return over a selected time frame and the accounts are guaranteed by the issuing insurance company.
- Tax-Deferred interest accumulation.
- The gains withdrawn from fixed annuities are typically taxable, and withdrawals for owners under 59 ½ are additionally subject to an IRS imposed 10% tax penalty.
- Fixed annuities offer preservation of Capital.
- Fixed annuities offer a guaranteed minimum interest rate; generally first year interest rate enhancement, with future rate adjustments.
- Some fixed annuities have some type of liquidity option, others have none.
- Generally, annuities liquidated and redeemed prior to the original terms of the offering have some type of withdrawal penalty.
- Typical Fixed Annuities have a Death Benefit.
- Some Fixed Annuities have a nursing home and disability waiver for penalty free withdrawals.
- Fixed annuities are issued by insurance companies and are state specific, what is available for the resident of one state might or might not be available for the resident of another state.
2. Variable - Money put in a variable annuity is invested in bond and stock funds, which you select. The value of the annuity and how much your money grows depend on how well those stocks and bonds perform. Like a fixed annuity, your money grows tax-deferred in a variable annuity. You can receive fixed or variable payouts from a variable annuity.