Annuities - Tips and Things to Consider when Investing in an Annuity
Tax Deferred Annuities
One way to build up your long term investments is with tax deferred annuities. No taxes are due on your investment earnings until begin to receive some income under the terms of your contract, when you invest in an annuity. IRAs and employer sponsored retirement plans often have contribution limits but that isn't the case with annuity investing. This is great in the sense that you can build up quite a nest egg for your long term needs. Putting your money into an annuity doesn't reduce your salary either, or income tax.
Below I share some things to look for and consider if you are an annuity investor or thinking about becoming one.
Annuties - Tips and Things to Consider
* Annuities are great if you are investing for the long term. Watch out for any possible early withdrawal penalty tax and income tax.
* Compare the different costs. There are similar annuities but with a range of costs, look for those that are more affordable.
* Look into the possible fees and annuity charges. Some experts caution against paying more than a very small percentage annually.
* You want to look into the reputation of the company that you are considering investing with. Make sure everything is sound.
* You want to look for annuities that offer the maximum amount of flexibility should you want to get your money out.
* Avoid annuities with life time surrender charges, and compare the different surrender periods available. Many have surrender charges within the first 7 years.
* Make sure to look beyond the initial rate if you are investing in a fixed rate annuity. Some can have unusually high rates. Approach those with caution or stay away altogether.
Immediate Annuities and possible drawbacks
If you are looking into an immediate annuity there are some things to consider. They do provide the security of a regular income for people, but also have a couple drawbacks.
Consider that if you choose a single life annuity and then die within a few years, that the company keeps the balance of your money. In that case, your family gets nothing from that. Also, your annuity may not keep pace with inflation. Lastly, the seller (like an insurance company for example) may not fulfill their part of the contract. So these are some good things to consider when weighing out deferred vs immediate annuities.
