2011 Tax to 2016 Tax

Free Tax Filing Options – File Federal Tax Return

Are Annuities a Good Investment

Posted on | July 18, 2013 | Comments Off on Are Annuities a Good Investment

Are Annuities a Good Investment

There are two different types of annuities: deferred annuities and immediate annuities. The type of annuity you choose depends on how soon you expect to receive payments. If you are looking for a long term investment where you plan on making withdrawals once you reach retirement then you might choose a deferred annuity. If you are looking to make withdrawals sooner than you may want to choose an immediate annuity.

English: Types of Annuities

English: Types of Annuities (Photo credit: Wikipedia)

Either type of annuity can be fixed or variable. A fixed annuity acts like a CD from a bank but in this case it is an investment with an insurance company. You have a fixed interest rate that you receive for the annuity and it is usually a higher percentage than a normal CD would bring at a bank.

The guaranteed interest payment from these fixed annuities as well as the minimum amounts that you have to invest makes the fixed annuities appealing for those who are not confident in the ways of the stock market.

Another nice thing is that you do not have to pay taxes on the interest gained until you decide to start withdrawing the money from the annuity. A disadvantage with fixed annuities is that the interest rates might be high to begin with but can drop after the first year of having the annuity. This unknown factor can be a turn off for some who are hoping that they can maintain the rates that they first received when they started their annuity.

If you do not like the new rates and want to withdraw your annuity before it matures then you might be stuck paying surrender charges that will cut into your profits. With a variable annuity you can choose from a variety of investments to put your money into and the rate of payment you receive depends on how well the investments performed. With variable annuities you invest in several different stock or bond like accounts that will help your investment grow over a long period of time. Just like with the fixed annuities you pay no taxes on your gains until you begin withdrawing from your account.

Although with variable annuities you may have an opportunity to have greater growth potential with your investment there are some drawbacks as well. The investments you chose may take a turn for the worse causing your potential growth to plummet. There are drawbacks with the tax rates when you decide to withdraw you money,as well as fees if you decide to withdraw early and there can be high sales commission fees. It is good to do your research before you decide which annuity is best for you or even if an annuity is a good investment.


VN:F [1.9.22_1171]
Rating: 9.7/10 (3 votes cast)
VN:F [1.9.22_1171]
Rating: +2 (from 2 votes)
Are Annuities a Good Investment, 9.7 out of 10 based on 3 ratings
Are Annuities a Good Investment by

Comments

Comments are closed.

  • Free Tax USA - LS
    H&R Block - Amazon
    TurboTax Canada - LC
  • TurboTax Promo Code

    Intuits TurboTax 2016

    50% Off TurboTax Online : VWV4307VGUA6K