Need to Know More About Annuities?

There are several different types of annuities. The fact is, you have several choices when it comes to annuities, allowing you to pick the one (if any) that is suitable for your retirement income strategy.

Fixed annuities:

• What is it?

Fixed annuities provide a guaranteed interest rate for a specific number of years. Payout periods are typically one, three, five, seven or 10 years and may also include the option for guaranteed* income for life.

• What is the tax structure?

With a fixed annuity, you defer paying taxes on the interest earned until you begin taking withdrawals or receiving scheduled annuitization payments. Once you begin withdrawals/payments, they will be taxed as ordinary income and, if you take withdrawals prior to age 59 1/2, a 10 percent federal additional tax may apply. If you purchase an annuity with after-tax dollars, you will only pay ordinary income taxes on your interest earnings (not on premium payments) when you begin withdrawing money.

Fixed Index annuity:

• What is it?

A fixed index annuity combines tax deferral and the potential for interest based on positive changes of an external index without actual participation in the market. The insurance company uses a crediting method to track the performance of the index(es) during a specified time period. At the end of each time period, the company calculates the indexed interest. If the result is positive, the annuity is credited interest up to a predetermined amount. If the result is negative, nothing happens, and the annuity’s value doesn’t decline.

• What is the tax structure?

Any interest earned in a fixed index annuity is tax-deferred until you begin receiving money from your contract. If you purchase a fixed index annuity with after-tax dollars, you will only pay ordinary income taxes on your interest earnings (not on premium payments) when you begin withdrawing money.Some fixed index annuities allow you to withdraw credited interest without penalty up to a certain amount each year. However, withdrawals will reduce the contract value and the value of any protection benefits. Be aware that withdrawals in excess of the “free” amount each year and during the contract’s surrender charge period may incur a surrender charge.

Immediate Annuity:

• What is it?

With an immediate annuity, the purchaser uses a lump sum of money to purchase a contact from an insurance company in return for a guaranteed series of payouts. This stream of income is guaranteed for a specified period of time or for the rest of your or your spouse’s life.

Because there is no accumulation phase, you must annuitize immediately to receive income distributions. This transaction is irreversible, meaning you no longer have access to your assets in a lump sum. When you die, any remaining contract value that could have been left to your beneficiaries is forfeited to the insurance company.<

• How much would my payout be? Well, that depends on several factors, including:

How much money you used to buy the contract

The interest rate at your time of purchase

The payout option you select

Your life expectancy

The date you choose for your first payment

Additional features you choose

• What is the tax structure?

Your income payouts will be taxed at ordinary income tax rates

Variable annuity:

• What is it?

These annuities are comprised of professionally-managed portfolios that vary in both investment objectives and representative holdings. This means that if you are working with a qualified investment advisor, you may allocate your purchase payments across any number of these portfolios. Because variable annuities involve investment in securities, they can only be sold by a financial professional with the appropriate securities license.

• What is the tax structure?

Taxes on earnings from variable annuities are not due until the assets are paid out. So, you will not be taxed when transferring assets between portfolios in your variable annuity.

• How much will it cost?

Because variable annuities are managed by professional financial advisors, there are certain fees for each portfolio in addition to the Mortality & Expense Charge (M&E) fees that cover administrative expenses.

• How can I guarantee my payout?

For an additional fee, those who purchase variable annuities have the option to add an income rider. Riders include: Guaranteed Minimum Income Benefit, Guaranteed Minimum Accumulation Benefit, Guaranteed Minimum Withdrawal Benefit and For-Life Benefits.*Guarantees and protections provided by insurance products including annuities are backed by the financial strength and claims-paying ability of the issuing insurer.

We hope this helped you get a better grasp on the types of annuities. Remember that you have options when it comes to picking insurance and investment products for your retirement income needs.


If you would like more information on annuities and how they can help you achieve your retirement goals, give us a call at 801-990-5055 or click here to request your complimentary, no-obligation consultation.

Our firm assists retirees and pre-retirees in the creation of retirement strategies utilizing investment and insurance products. Advisory services offered through B.O.S.S. Retirement Advisors, a Registered Investment Advisory firm, and offered through Global Financial Private Capital, LLC, an SEC Registered Investment Advisor. Insurance products and services offered through B.O.S.S. Retirement Solutions. To see a list of services please visit us at bossretirement.com/services.

This content is provided for informational purposes only. It is provided by third parties and has been obtained from sources believed to be reliable, but accuracy and completeness cannot be guaranteed. The information is not intended to be used as the sole basis for financial decisions, nor should it be construed as advice designed to meet the particular needs of an individual’s situation.We are not affiliated with any government agency including the Social Security Administration.