An annuity is a contract or deposit with an insurance company that comes with many benefits including tax-deferral for non IRA money which reduces annual taxes. For IRA money the funds are already tax-deferred. An annuity can be used for Roth IRA’s, 401k’s, 403b’s, IRA’s or non-IRA Money. Annuities also avoid probate.
Index Annuity – Your principal is protected from losses, there is no fee, you don’t pay taxes until money is withdrawn which allows your money to earn more interest. There are minimum interest rate guarantees, the account only goes up, never down and there are free withdrawals.
There are additional optional benefits available, some with and without a fee. These include a large guaranteed monthly check for life even if the account goes to zero, a large monthly check for long term health care and a large death benefit for a spouse or children. Heirs receive all money in the account upon death. The insurance company does not keep any of it.
The growth depends on how the money is invested with the index funds offered such as: real estate, the S&P 500, NASDAQ, etc. Also available is a fixed rate at that pays 5.25%. You can choose both the fixed rate and index funds and change annually without taxes or fees. Not all index funds offered perform well. Some do, some don’t. Also, investing because you’re familiar with the name of a company or because it’s A rated could be a mistake. Not all insurance companies have the best annuities. It’s knowing what you own that matters most.
Variable Annuity – These offer a variety of professionally managed portfolios called subaccounts that invest in stocks, bonds and balanced investments. However, these subaccounts fluctuate with the market and can lose money.
Your principal can be worth less when you surrender a variable annuity. It has good growth potential but also has risk of losses. They contain many of the benefits of an index annuity but have fees: management fees, fund fees, rider fees, transaction fees, etc., which could range from 1 to 4% annually.
If you own or are considering an annuity, call Lifeguard Financial to receive an Annuity Analyzer Report (400 annuities with 65 insurance companies) and an Annuity Comparison Report that allows you to read the facts and details. You’ll make the right decision using this information.
If you’re unhappy with your current annuity, call us. You may be able to trade up for a much better one now and avoid taxes, fees and penalties. You could earn more interest and save on fees.