Understanding the Basics
What is an Annuity?
Understanding the Basics
What is an annuity? Essentially, an annuity is a contract between an individual and an insurance company. You contribute a set amount of money, which gains interest over a set period of time. Then, you will begin receiving payments. Typically, an annuity may allow you to receive payments for the rest of your life. You can decide whether you want to receive payments monthly, quarterly, or annually. More details, like how the interest rate is determined, vary between different types of annuities, and between different individual contracts.
What is a Fixed Indexed Annuity?
An FIA (fixed indexed annuity) is a type of annuity product with the potential for indexed interest, with the benefit of keeping your money safe. What this means is, your interest rate will rise based on the performance of a stock market index. However, if the index falls, your FIA will not lose value: an FIA is not an investment. No matter what happens in the stock market, the money in your annuity will remain protected.*
Annuities and Taxes
An annuity grows tax-deferred. Unlike some types of retirement plan accounts, which tax your interest, you will only pay taxes on the money in your annuity when you take it out. Additional tax benefits may apply. For example, if you’ve received a lump-sum payment from an employer-issued 401(1k), you may be able to transfer that money into an annuity, in order to postpone taxes on it. We have a qualified tax professional on staff to talk with you in more detail about the tax implications–reach out to us to learn more.
