What is an annuity?
An annuity is a contract between you and an insurance company, in which you give the company a sum of money (called a premium). This premium accumulates over time on a tax-deferred basis until you withdraw it from the annuity or begin taking a guaranteed income from the contract. This income can be for a specified number of years or guaranteed for life, which means you have a retirement income you can't outlive.

What does "tax-deferred" mean to me?
Under current federal and state law, fixed annuities are tax-deferred, which means you don't have to pay any taxes on the interest earned until you withdraw money from the contract. This benefit allows your money to grow faster because interest normally lost to taxes each year is left in the contract to earn more interest

IRAs and qualified plans are already tax-deferred. Consider other annuity features.

What are the benefits of an annuity?
As mentioned above, you can earn interest on the money in your annuity contract without having to pay taxes while interest is accumulating tax-deferred. Only if you take money out of your contract will it be reported as income and become subject to taxation. When you do begin to withdraw money from your annuity, you may be retired, so your income tax rate may be lower. Another benefit of an annuity is that death benefits pass directly to your beneficiaries, avoiding probate. With an annuity, you can choose which benefits best suit your personal needs and situation.

What if I need to withdraw money early from my annuity?
Most annuities allow you to withdraw a percentage of your value each year without surrender charges. However, there may be a 10 percent IRS penalty for withdrawing interest earnings before age 59½. Full withdrawals or withdrawals that exceed the surrender-free portion may be assessed a surrender charge. You should always ask about such charges and fees before buying, so that there are no surprises later. If your annuity is an IRA or a qualified plan, once you reach age 70½ you must begin taking a required minimum distribution.

What are index annuities?
An index annuity is a fixed annuity where interest crediting is linked to a financial index such as the S&P 500® Index. Index annuities, like other fixed annuities, offer guarantees. These guarantees may include a minimum guaranteed surrender value, flexible withdrawal features, income options, a death benefit and a minimum rate of interest. Index annuities also guarantee that your index credit rate can never be less than zero. This means that you still have safeguards, but because index annuities are linked to an external financial index, you also have the potential to earn more interest than you would with many fixed interest rate annuities.

Overall, annuities may be able to help you meet your long-term retirement needs. When you are ready to explore annuities in greater detail, contact one of our financial professionals to help you find the best option for your long-term needs.