Understanding the Basics

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Understanding Annuity Basics

An annuity is an agreement with an insurance company, setting you up to receive a series of set payments over time. An annuity can allow you to receive payments for the rest of your life. Annuities also have certain tax benefits that come with them, and other benefits, depending on what specific type it is. We can help you understand annuity basics.

Annuity Basics

The risks associated with an annuity vary, based on what type it is. For example, some annuity products (fixed annuities and fixed indexed annuities) don’t come with any risk of losing your money in the stock market. Others (such as variable annuities) do come with this possibility. Because we believe in safety as a core value, it’s our belief that fixed indexed annuities (FIAs) are the type you probably want to consider.

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Fixed Indexed Annuities

An FIA comes with the benefit of keeping the money you contribute safe. This is because that money isn’t invested in the stock market. However, you may have the opportunity to earn higher returns on this money based on the performance of an external index.

In other words, reasonable rates of return** when the market is up, and guaranteed* safety even when the market is down. If you ask us, this makes an FIA the best of both worlds.

Annuities and Taxes

An annuity grows tax-deferred. What this means is, you don’t pay taxes on your earnings until you actually withdraw money from your annuity. Because it is taxed differently than, for example, a 401(k), it may be advantageous to “rollover” your 401(k) or other retirement plans into an annuity, postponing the tax on the money in it. Of course, for topics such as this, you should consult a qualified tax advisor.

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