Annuities
An annuity is a contract between you and an issuer (usually an insurance company).
In its simplest form, you pay a premium in exchange for future periodic payments to begin immediately (an immediate annuity) or at some future date (a deferred annuity) and to continue for a period that can be as long as your lifetime.*
Important: Annuities are long-term, tax-deferred investment vehicles intended to be used for retirement purposes. Any gains in tax-deferred investment vehicles, including annuities, are taxable as ordinary income upon withdrawal. For variable annuities, investment returns and the principal value of the available sub-account portfolios will fluctuate so that the value of an investor's units, when redeemed, may be worth more or less than their original value.
Key strengths
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Interest and capital gains generated by an annuity accrue tax-deferred until withdrawn.
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You can receive payments from the annuity for your entire lifetime, regardless of how long you may live.*
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There are normally no contribution limits.
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There are many different types of annuities from which to choose.
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You pay taxes only on the earnings portion of annuity payments.
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At death, proceeds from an annuity pass free from probate to your named beneficiary.
Key tradeoffs
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Annuities carry fees and expenses
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May have surrender charges
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Contributions are not tax-deductible
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There may be tax penalties for withdrawals prior to age 59½
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Once you elect a specific distribution plan, annuitize the annuity and begin receiving payments, that election is usually irrevocable (with some exceptions)
*Guarantees are subject to the claims-paying ability of the issuing insurance company.
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