Fixed Annuities – Features & Benefits

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Let’s discuss the features and benefits of fixed annuities. The first benefit is tax-deferral. If you have money that is not IRA money going into a fixed annuity the interest it earns will not be subject to taxation. There will be no 1099s issued by the insurance company on interest earned in a deferred annuity. Unlike bank CDs which you do get 1099s on whether you need or use the interest or not. Taxation on interest earnings only begins when you choose to begin taking money out of the fixed annuity. A second benefit is that you can add money to some fixed annuities similar to a money market account. The third benefit of fixed deferred annuities is that nearly every annuity has a 10% penalty free withdrawal per year during the surrender charge period. Remember at the end of the surrender charge it is all liquid. When we discuss liquidity it is only during that period of time, whether it be five, seven, or ten years, that the 10% penalty free withdrawal applies. Another liquidity feature would be complete 100% free withdrawal if you are confined to a nursing home or if you have a terminal illness. You could also turn your fixed deferred annuity into an income stream for at least a five year period, thereby avoiding all surrender charges. These liquidity features only apply during the surrender charge period. Another great feature of fixed annuities is that there are no fees taken out of your fixed annuity. Fees can be the silent killer of a lot of stock portfolios. Any money in a fixed deferred annuity is also protected from lawsuits. The final feature is that at the death of the annuity holder the annuity passes to a named beneficiary. The beneficiary can then submit a claim to the insurance company and receive all of the money in that annuity.