An annuity is a contract with an insurance company that is funded by the purchaser and designed to generate an income stream in retirement. It is a flexible, financial vehicle that can help protect you against financial risk if you live a long life. It provides an option for a lifetime income.
One advantage of annuities is the funds that accumulate are tax-deferred. They can be distributed in a variety of ways to the contract owner. There are many different types of annuities. Immediate annuities are designed to provide income right away, whereas deferred annuities are designed for long-term accumulation. Some annuities offer a guaranteed rate of interest, whereas others do not.
(This material was written and prepared by Emerald Publications. Copyright 2007 Emerald Publications.)
Fixed annuities are long-term investment vehicles designed for retirement purposes. Gains from tax-deferred investments are taxable as ordinary income upon withdrawal. Guarantees are based on the claims paying ability of the issuing company. Withdrawals made prior to age 59 1/2 are subject to a 10% IRA penalty tax and surrender charges may apply.
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