Understanding Fixed Annuities

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Fixed Index Annuities
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What Is a Fixed Index Annuity?

Some insurance companies offer a fixed index annuity (FIA) product. The FIA is designed to help people protect their principal, but still have a reasonable rate of return.** In more detail, it is a tax-deferred earnings tool that protects you from losing the money you put in. What if you could purchase an insurance product that credits interest based on a Stock Market Index and when the Stock Market Index goes up, you may have the opportunity to be credited more interest? When the Stock Market Index goes down you don’t lose any of your principal. To simplify, the word “fixed” means your principal is guaranteed.*

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Understanding Fixed Annuities:

Tax Deferment

Unlike a savings account or certificate of deposit (CD), you earn money in your annuity, tax-deferred. Your annuity can grow, but you’ll only pay taxes when you take money out. Additionally, you can purchase an annuity using a tax-qualified strategy, such as an IRA.

Also, you may choose to rollover your 401(k) or pension plan in a lump sum into an annuity.  If you are under 59 and 1/2, this rollover strategy could save you additional upfront taxes. By rolling your money into an annuity, you defer the taxes until you begin withdrawing from it. Now you can see the importance of understanding fixed annuities in terms of taxes.

This is also helpful if you are collecting other income such as social security. In this case, you can prevent your earnings from showing as taxable income. Simply keep your money in the annuity. When you’re ready, you can withdraw it as long as it is within your distribution period.

Do Annuities Offer Guarantees?

Some annuities come with a high degree of protection. For one thing, the insurance company secures your premium and earnings. As a matter of fact, insurance companies must put assets aside to cover claims made by their policyholders. Also, insurance companies are monitored and rated. You can rest assured, Messina's Wealth Management only uses the highest rated insurance companies available.

are fixed annuities guaranteed
Understanding Fixed Annuities:

Why Might You Consider One?

The value of a fixed index annuity is that you may get a higher interest rate than bank CDs or other options to secure your money. The focus is on protecting your wealth. You may reach a reasonable rate of return, without losing your hard-earned money. Another reason retirees contribute to an annuity: they max out their 401(k). With an annuity, there is no limit on your contribution amount. This is useful for people who want to save more for their retirement than their retirement strategies allow. Especially if you would rather keep your principal safe.

You must take an RMD or required minimum distribution from your IRA or pension once you are over age 72. If you don’t, you could wind up paying a 50% penalty in addition to the taxes owed, on your required withdrawal. So, many people pay an annual fee to an attorney or accountant to calculate this for them. However, if your IRA funds roll into a fixed index annuity, the insurance company will take care of it at no additional cost.

Lifetime Income

Annuities can generate an income that lasts a lifetime. Retirees who are concerned about running out of money may choose an annuity to protect their wealth. What’s more, a fixed index annuity can provide income stability with guaranteed lifetime income.* Understanding fixed annuities can help give you the confidence you need to enjoy your retirement.

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