What are Retirement Annuities?

Answer:
Retirement annuities are like an individual

pension plan. They come in many different forms including immediate, deferred, fixed, and variable.

For example, if you put your money into a deferred annuity during your working years, the money will accumulate on a tax deferred basis until you are ready to take it out, usually at retirement. You can opt to take out a lump sum or receive a series of payments.

As a retirement investment, you will be subject to early withdrawal penalties if you withdraw the money before reaching age 59 ½.

Retirement annuities come in all kinds of forms. You can choose annuities that guarantee income for life or for a specific time period. With annuities, you make a one-time payment and receive income based on the earnings of the annuity.

When withdrawing from the annuity, you won’t pay taxes on the original principal however all earnings will be taxed as regular income. Retirement annuities can be part of your retirement strategy but they do come at a cost.

The fees are generally higher and the earnings are taxed at ordinary income rates when withdrawn. Consider retirement annuities after maxing out your 401K and IRA contributions.


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