Things To Evaluate Before Deciding on Investing in an Annuity

If you want a safe investment but don’t want to put more money into CD’s you’ll find that a fixed annuity is viable choice. These products function similarly to CD’s but have a few additional advantages. Of course with every benefit there is drawback. One of the features of fixed annuities is the tax-deferred growth. This also makes the product not as viable for younger people not close to the age of 59 .

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 .

If however you’re close to 59 or past it you’ll find that the tax-deferred growth is to your advantage. While you’re earning higher income & in a higher tax base you grow the funds tax-deferred. Once you retire & your income drops you can withdraw the funds your fixed annuity. While the growth is still taxable you pay the taxes at a lower rate.

You need to be careful because of the taxation rules for annuities. The rules of LIFO apply in this case. LIFO is an acronym for last in first out. It means for tax purposes the IRS considers the last money into any fixed annuity contract is the first money you take out of it. Since interest builds after principle goes into the contract that money is the interest. If you withdraw a large amount you are right back to square one with a higher taxable income. The best method is to take funds out over several years. If you want the money sooner consider taking an amount equal to half the interest late in the month of December & request the balance of the funds early the following year.

Some financial books or advisors don’t think you should use a fixed annuity for retirement funds already in a tax-deferred program. That’s because both have a tax-preferred treatment. This is only true if you purchase it for the tax benefits & not the return. If you find a fixed annuity that pays more than the going CD rate it only makes sense to go with the higher interest.

The right to remove some money without a penalty is important. Most of the time CDs offer you the ability to take your interest but charge a penalty if you touch your principal. Some annuities however allow you to remove as much as 10 percent from contract every year before the surrender period ends without an additional charge.

You can do the same thing if you break apart your lump sum & put some in very short term CD’s & then mix the due dates of the other CD’s so they come due at different times. The caveat to this is that you often get a lower return on your money by taking smaller CDs for shorter periods. There’s also no guarantee that the CD will be due just when you need it the most. The right to withdraw funds from an annuity bypasses this problem.

If you haven’t looked into an annuity for your financial plans it may be time to do so. Diversification is the keystone to good financial planning so consider the annuity for only part of your money. A fixed annuity is safe investment that adds many benefits to your financial plans.

Ryan N. Matthew provides the latest advice marketnews & facts that investors should consider before choosing the best anuity insurance for their retirement. Choosing the best annuity is big decision & you should get all the facts & look at all the annuity options. Click the links to learn more about anuities & get the best fixed annuity quote.

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