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What is an Annuity?

What is an Annuity?

August 31, 2018

Individuals hold more than $1.5 trillion in annuity contracts; a tidy sum considering an estimated $4.5 trillion is help in all types of IRAs.

Annuity contracts are purchased from an insurance company. The insurance company will then make regular payments – either immediately or at some date in the future. These payments can be made monthly, quarterly, annually, and can even be paid out as a single lump-sum
Annuity contract holders can opt to receive payments for the rest of their lives, or for a set number of years.

The money invested in an annuity grows tax-deferred. When the money is withdrawn, the amount contributed to the annuity will not be taxed, but earnings will be taxed as regular income. There is no contribution limit for an annuity.

There are two main types of annuities.

Fixed annuities offer a guaranteed payout, usually a set dollar amount or a set percentage of the assets in the annuity.

Variable annuities offer the possibility to direct the allocation of premiums between various subaccounts. This gives annuity owners the ability to participate in the potentially higher returns these subaccounts have to offer. It also means that the annuity account value may fluctuate in value.

Have you read much about annuities in the past few months? Is what you hear good or bad?