Fixed & Variable Annuities

An annuity is a contract between you and an insurance company.  Annuities are considered long-term investment vehicles usually obtained for retirement purposes, but can also be part of an estate planning strategy.  There are two stages to an annuity: (1) the savings stage or accumulation period, and (2) the income stage or liquidation period.

An annuity can provide a steady stream of income and protection in retirement against the possibility of outliving your money.   There are choices to consider at the liquidation/income stage.  Earnings within an annuity grow tax-deferred until funds are withdrawn and are taxed as ordinary income upon withdrawal.

Surrender charges may be imposed if annuity funds are pre-maturely liquidated while it is within the surrender period.  The issuing insurance company may allow surrender charge-free withdrawals within a specified percentage of the contract’s cash value.  However, income taxes on gains will apply, and an early withdrawal penalty of 10% before age 59 ½ will apply.  You should carefully consider all possible penalties before making a withdrawal.

There are two types of annuities:

  1. Fixed Annuity
    Monies within a fixed annuity grow at a fixed interest rate that is guaranteed by the issuing insurance company.  Fixed dollar payments are paid over the term of the contract at the income stage and the insurance company assumes all the risk.  This type of an annuity is geared toward investors who tend to be more risk-adverse.
  2. Variable Annuity
    This type of an annuity offers sub-accounts, which include various investment options that may fluctuate based on the performance of the managed investment portfolio.  There is a potential for higher returns by participating in the stock market, however the investor assumes the investment risk (not the insurance company).

    The investment returns and principal value of the available sub-account portfolios will fluctuate so that the value of an investor's unit, when redeemed, may be worth more or less than their original value. Variable Annuities have fees and charges, including mortality and expense risk charges, administrative fees, and contract fees. They are sold only by prospectus.

Because annuities are complex, be sure to consult one of our investment professionals who can provide you the necessary guidance and direction.  Consult a tax professional who can assist you with any tax ramifications that may or may not affect you.

Important Message:  Annuity contracts may be returned within 30 days from the date you receive it for a full refund by returning it to the insurance company or agent who sold you the policy.  After 30 days, cancellation may result in a substantial penalty, known as a surrender charge.

There is a surrender charge imposed generally during the first 5 to 7 years that you own a contract.  Withdrawals prior to age 59 ½ may result in a 10% IRS tax penalty, in addition to any ordinary income tax.  The guarantee of an annuity is backed by the financial strength of the underlying insurance company, and the investment sub-account of a variable annuity will fluctuate with changes in market conditions.


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