Annuities are an investment savings account with a life insurance company. Using the life insurance company your money will grow tax deferred. Tax deferred means that you do not have to pay taxes on the growth of your investment.

Learning about annuities before you begin investing is a smart thing to do. There are so many different things you need to understand before you start investing. However, if they are used with other pretax investments they can be a wonderful tool for (tax deferred growth).

Real World Examples of annuities

An annuity is a series of payments made at regular intervals over a period of time. Annuities are issued by insurance companies. Typically, you pay in an amount of money and receive regular payments in return.

Normally State lotteries are paid in annuity fashion. Say someone wins 10 million dollars. That person will receive 10 million dollars immediately, but he may receive 500,000 per year for 20 years. Get the picture? Many companies use annuities to pay their employees retirement.

Fixed annuities have a fixed rate of savings with an insurance company. However, the rate is normally low and not too cheap. To use a fixed annuity you must leave your money alone for 5-10 years, and you can be penalised if you withdraw any money early. Basically stating that you better be completely positive about your investment before using a fixed annuity.

According to Dave Ramsey

Variable annuities are used to invest your money into many different types of securities that usually involve mutual funds. The benefits of variable annuities include tax deferral of growth, and the option of investing into different funds. Understanding the annuity fully before you invest is a key to utilizing the benefits and avoiding all the fine print mistakes everyone else makes.

When dealing with variable annuities you must first look at these things. If you have a 403b, 401k, or other retirement plans they are low-cost tax deferred accounts. You should take full advantage of them. As well as looking into Roth Ira's and Traditional Ira's which also offer tax free and tax deferred growth. You must first pay a fee to the annuity/life insurance company. Then you will pay to companies that you invest in the annuity aka mutual funds. And then you agree to a contract that binds you to leave the money alone while you invest in the annuity. Depending on your contract with the company your penalties will differ but, there is only one thing to remember. Know the product before you buy into or invest in it.

When dealing with variable annuities you must first look at these things. If you have available aThe choice is yours use all of the information given to you and research more in depth to see what option suits your financial situation.

Hope This Helps and God Bless!

-The Franklin