Fixed Annuity Accounts
A fixed annuity most closely resembles a certificate of deposit. The account has a set interest rate that will be guaranteed for a chosen number of years. Other versions have a floating rate that will renew every year at the new rate. Interest rate conditions will usually dictate which type is more advantageous.
View Current Fixed Annuity Rates
When interest rates are high, you have the ability to lock in the higher rate for your investment time horizon. Conversely, when interest rates are low, and may be rising, a floating rate annuity can provide better yields. Consumers can choose from a wide array of fixed annuities depending on their investment goals and time-lines. Annuity durations range from three to ten years.
Fixed annuities are designed to compete with certificates of deposit, interest-bearing government bonds, corporate bonds, municipal bonds and some mutual funds. Annuity policies are very popular because they offer tax-deferred growth, safety, flexibility and high interest payments. Because many consumers began to trade in their certificates of deposit and money market funds for annuities, various banks have hired licensed insurance agents to offer annuities to protect the bank’s deposits. However, a potential problem with purchasing an annuity at your local bank is that the bank representative is typically only licensed with one or two insurance carriers. The lack of diverse carriers and products offered by the bank can greatly limit your options and reduce your potential for higher returns.
Why Invest in an Annuity Policy?
Investors purchase annuity policies for many reasons. In some cases, the tax deferred benefits of these accounts is the motivating factor. Consumers can defer taxes for their entire lifetime in a non-qualified annuity. Another popular use for an annuity product is to save for retirement. The I.R.S. can impose a monetary penalty if an annuitant (or owner) takes a withdrawal from their annuity prior to age 59½. Thus, an individual looking to save, either through a qualified or non-qualified account, would have an incentive to systematically contribute to their annuity and then set aside these funds until retirement is reached.
In other cases, individuals might simply have a portion of their salary deducted each month and deposited into a tax sheltered annuity plan or TSA. The earnings deducted from the individuals salary and allocated to the annuity would not be taxed as income in this example. This would be ideal for a person who does not have a retirement plan offered by their employer, an inadequate retirement plan or one who is self-employed.
Yet another approach is to start funding an annuity plan at an early age with excess savings. This method is not taxed like a qualified plan by the IRS, but the investment still grows tax deferred until the owner begins withdrawals. These annuity types are also referred to as non-qualified plans and remain subject to penalties if withdrawals are taken before age 59½. However, the owner will not be subject to a required minimum distribution at age 70 ½ like he would be with a typical retirement plan, such as an individual retirement account or IRA. Many consumers fund an annuity in this manner if they feel their current retirement plans may not provide adequate income in the future.
Institutions and an Annuity Pension
Non-profit organizations in Ohio often use 403(b) annuity plans for their employees. In addition, many large state and private universities employ insurance companies to manage their employee’s retirement accounts. Teachers have long contributed to annuity accounts for their retirement. Consequently, many teachers rollover their retirement annuity once they have separated from their employer.
Individuals are not the only potential annuity investors. A business or corporate entity might purchase an annuity to diversify their investment portfolio. The corporate owners may feel their exposure to stock and bond market instruments is too high and the corporation would benefit from a more predictable, interest yielding account. In this case the annuity would be under the tax identification number of the corporation instead of an individual.
Summary
In summary, these accounts are the most conservative type of annuity currently available on the market. They are designed to be very reliable and predictable for investment portfolios. A fixed annuity is usually appropriate for consumers looking for a systematic interest payment or guaranteed compounding interest on a daily basis. Consumers invest with these plans to provide for current needs or to provide for their security in retirement.
Providers
Currently we offer fixed annuities from Equitrust, Jackson National Life, Standard Life, Aviva and many others. Contact us to open an account today.
