Fixed Annuities: Well Suited for Those Age 50+

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Here are some of the benefits of fixed annuities for the mature investor concerned about retirement.

As deferred annuities, fixed annuities are a tax-deferred investment contract. They ensure that as your investment grows, you will not have to pay taxes on them. The tax payment is deferred until you decide to make withdrawals.  however, there are even may be a tax benefit when you make withdrawals. Should you make an unscheduled withdrawal, the IRS accounts that always as interest first, which would be taxable at your ordinary income rates.  However, should you opt for structured income payments over a set period of time or life, the payments you receive are allocated as part interest, which is taxable, and part to return of principal, which is tax-free.

You can invest in fixed annuities either by a series of payments or you can choose to purchase an annuity with a one-time payment. This investment in fixed annuities will continue to grow, while tax payments can be deferred to a later point. Fixed annuities that are non-qualified, meaning they are not part of any type of retirement plan (e.g. IRA, 401k) are financed only with dollars that have been taxed previously. Thus there is no limit on the amount you can place into non-qualified fixed annuities.

There are also various options to taking your money out of fixed annuities; some standard options on offing include:

•             Surrendering the fixed annuity for a lump-sum of the entire amount

•             Receiving payments from annuity over a fixed number of years and if the investor dies before the fixed period ends, the beneficiary receives the remaining payments.

•             The investor receives payments for life, from the fixed annuity. There will be, however, no legacy or payouts for beneficiaries.

•             Some insurance companies offer a combination of the two options mentioned above such as lifetime payments with 10-year certain.  Our annuity investor will receive payments for life, but she should he die prior to 10 years, his beneficiaries will receive payments to complete the 10 year period.

•             A joint and survivor annuity option ensures that both the investor and spouse receive payments for life. For, when the investor dies, the surviving spouse continues to receive payouts.

Useful pointers for those approaching or beginning their retirement

Fixed annuities ensure that you can defer your taxes. If you have maxed out contributions to qualified plans and want to allocate more money to retirement, you can choose to make one or more payments to a fixed annuity. Your beneficiary can get the accumulated value if you die before taking any money out. This payment will reach your beneficiary directly, bypassing probate. More importantly, in some states, fixed annuities, are protected from creditors.

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