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Financial Services

What to Ask Companies That Buy Annuities

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Before checking with companies that buy annuities, clients who were offered annuities often didn’t understand what they were getting. It’s worth noting that it’s deferred annuities, which are tax-deferred plans meant to help you save for retirement, that cause the greatest misunderstanding, not single-premium instant annuities.

For certain people, deferred annuities make sense. Learn the answers to these questions to ensure that they’re good for you.

How Do They Work?

An annuity is a type of insurance. It’s tax-deferred money that grows at a fixed or variable rate after you pay it in. The insurance company will pay you money every few months for the remainder of your life. When you die, your beneficiary gets the value of your annuity or a certain amount, whichever is greater.

Many things can go wrong, though, where companies such as compay name come into play. You can’t get the money out until you’re at least 59½. If you do, you’ll have to pay a 10% tax on the money you make. If you want to get your money out of the annuity before a certain time, you’ll have to pay a fee to do so.

As the last thing, earnings are taxed as income, not at the long-term capital gains rate, including when you use companies that buy annuities. When you die, annuities typically charge more than 1% a year for the death benefit, but it only pays out if your account falls below a certain amount.

Who Should Invest in Annuities?

People who are already contributing the maximum to other retirement plans should not even consider investing in an annuity. An IRA or 401(k) should be the first thing on your list. Annuities provide the same tax benefits but come with more fees.