Most people that want a secure fixed investment look toward a CD as their ideal product. Often they don't realize there are other options just as safe but often with more benefits than the CD provides. One of these products is a fixed annuity. There are several advantages over the traditional CD. One of which, is the tax-deferred growth of the annuity. Of course, if you're young, this advantage can become quite a financial stumbling block.
The reason that the tax-benefit in the annuity isn't suitable in many cases is the same reason that young people shouldn't put every cent they have in retirement accounts. Just like other retirement accounts that receive special tax treatment, annuities have a ten percent penalty on the growth if the owner removes the funds before they reach 59 .
For those close to 59 or older, the tax-deferred growth is a wonderful opportunity. During your working years, while your income and tax base is higher, you can tuck your money away and get tax-deferred interest. Once you retire and your income drops along with your tax-base, simply remove the interest and pay lower taxes on your return.
There is a federal taxation law for fixed annuities called LIFO. That is the short way of saying last in, first out. It means that the interest is the first thing you remove from the annuity, so if you have a substantial amount of interest in the product, you may end up paying just as much. You can avoid that problem, however, by stretching your payments over several years or taking annuity payments, which receive different tax-treatment.
Depending on the financial advisor you select, you'll hear mixed messages on the use of a fixed annuity to fund an IRA or 401K rollover. The reason is the duplication of tax-deferral. While the purchase of an annuity because of it's tax-deferred basis alone would make a foolish selection, if the interest rate is higher than other fixed instruments, then it is a logical candidate to fund a tax-deferred plan. This is especially true if you have more rights to access your money in the annuity.
You also often have more liberal invasion rights with a fixed annuity than you do with a CD. Traditionally CDs allow you access only to the interest until the due date. Many fixed annuities offer that option plus the right to as much as 10 percent of the principle with no penalty. Some companies even make it cumulative if you don't use it one year.
While you can ladder your CDs, schedule them for periodic due dates, you accept a lower rate of return when you do this in two ways. The first is by using a shorter period for some of the CDs, therefore a lower rate. The other way is by breaking your money down into several smaller CDs.
It makes sense to look at fixed annuities as part of your financial plan. Just like any investment, you need to diversify and not put all your eggs in one basket, but a fixed annuity could be a very beneficial basket to use when you want a safe and secure investment. - 31884
The reason that the tax-benefit in the annuity isn't suitable in many cases is the same reason that young people shouldn't put every cent they have in retirement accounts. Just like other retirement accounts that receive special tax treatment, annuities have a ten percent penalty on the growth if the owner removes the funds before they reach 59 .
For those close to 59 or older, the tax-deferred growth is a wonderful opportunity. During your working years, while your income and tax base is higher, you can tuck your money away and get tax-deferred interest. Once you retire and your income drops along with your tax-base, simply remove the interest and pay lower taxes on your return.
There is a federal taxation law for fixed annuities called LIFO. That is the short way of saying last in, first out. It means that the interest is the first thing you remove from the annuity, so if you have a substantial amount of interest in the product, you may end up paying just as much. You can avoid that problem, however, by stretching your payments over several years or taking annuity payments, which receive different tax-treatment.
Depending on the financial advisor you select, you'll hear mixed messages on the use of a fixed annuity to fund an IRA or 401K rollover. The reason is the duplication of tax-deferral. While the purchase of an annuity because of it's tax-deferred basis alone would make a foolish selection, if the interest rate is higher than other fixed instruments, then it is a logical candidate to fund a tax-deferred plan. This is especially true if you have more rights to access your money in the annuity.
You also often have more liberal invasion rights with a fixed annuity than you do with a CD. Traditionally CDs allow you access only to the interest until the due date. Many fixed annuities offer that option plus the right to as much as 10 percent of the principle with no penalty. Some companies even make it cumulative if you don't use it one year.
While you can ladder your CDs, schedule them for periodic due dates, you accept a lower rate of return when you do this in two ways. The first is by using a shorter period for some of the CDs, therefore a lower rate. The other way is by breaking your money down into several smaller CDs.
It makes sense to look at fixed annuities as part of your financial plan. Just like any investment, you need to diversify and not put all your eggs in one basket, but a fixed annuity could be a very beneficial basket to use when you want a safe and secure investment. - 31884
About the Author:
Ryan N. Matthew provides the latest advice, marketnews, and facts that investors should consider before choosing the best anuity insurance for their retirement. Choosing the best annuity is a big decision and you should get all the facts, and look at all the annuity options. Come see us to learn more about annuities, or to get the best fixed annuity quote.
