Welcome to the CT Thames Financial Blog. In this article we look at the differences between fixed indexed annuities and variable annuities.
Fixed indexed annuities are insurance products that provide principal protection and opportunity for growth. They were designed to provide more growth potential than a traditional fixed annuity but less growth potential than a variable annuity. Fixed indexed annuities do not lose principal or credited interest when the investment markets decline.
Variable annuities are also offered by insurance companies, but they are legally considered investment products because their assets include stocks, bonds, and other investment securities. They have more growth potential than fixed indexed annuities, but they also have all the usual investment risks and can be very volatile.
Variable annuities also have fees that fixed indexed annuities do not have, and those fees can be quite high. Most fixed indexed annuities have no fees unless some optional benefit or rider has been added to the contract.
Most indexed and variable annuities have surrender charges that apply if the policy is surrendered before it has been in force a prescribed number of years, or if partial withdrawals exceed the penalty-free amount that can be withdrawn each year. Surrender charges are determined by the issuing company and usually apply for the first 5 to 10 years after the annuity is issued. During those years, many indexed and variable annuities allow annual penalty-free withdrawals of 5% to 10% of the accumulated value, beginning after the contract has been in force one year.
Gains on both types of annuities are tax-deferred until withdrawn, and then they are taxed as ordinary income. And like traditional IRAs, withdrawals from an annuity before age 59 1/2 may be subject to state and federal tax penalties. Both types of annuities can be used to fund traditional and Roth IRAs, and in that case the rules regarding IRAs will apply.
This article is not a recommendation or complete explanation of any product. Prospectuses (for variable annuities), product brochures, and a variety of disclosure documents are provided by the companies that offer indexed and variable annuities. Be sure to read and understand them before buying any kind of annuity. For additional information please refer to the National Association of Insurance Commissioners Buyer's Guide for Deferred Annuities CLICK HERE and to the variable annuities guide at Investor.gov CLICK HERE
About the author: C. Thomas (Tom) Thames is a Certified Financial Planner(TM) professional with over 45 years of experience as an insurance agent, stockbroker, and investment adviser representative.
Fixed indexed annuities are insurance products that provide principal protection and opportunity for growth. They were designed to provide more growth potential than a traditional fixed annuity but less growth potential than a variable annuity. Fixed indexed annuities do not lose principal or credited interest when the investment markets decline.
Variable annuities are also offered by insurance companies, but they are legally considered investment products because their assets include stocks, bonds, and other investment securities. They have more growth potential than fixed indexed annuities, but they also have all the usual investment risks and can be very volatile.
Variable annuities also have fees that fixed indexed annuities do not have, and those fees can be quite high. Most fixed indexed annuities have no fees unless some optional benefit or rider has been added to the contract.
Most indexed and variable annuities have surrender charges that apply if the policy is surrendered before it has been in force a prescribed number of years, or if partial withdrawals exceed the penalty-free amount that can be withdrawn each year. Surrender charges are determined by the issuing company and usually apply for the first 5 to 10 years after the annuity is issued. During those years, many indexed and variable annuities allow annual penalty-free withdrawals of 5% to 10% of the accumulated value, beginning after the contract has been in force one year.
Gains on both types of annuities are tax-deferred until withdrawn, and then they are taxed as ordinary income. And like traditional IRAs, withdrawals from an annuity before age 59 1/2 may be subject to state and federal tax penalties. Both types of annuities can be used to fund traditional and Roth IRAs, and in that case the rules regarding IRAs will apply.
This article is not a recommendation or complete explanation of any product. Prospectuses (for variable annuities), product brochures, and a variety of disclosure documents are provided by the companies that offer indexed and variable annuities. Be sure to read and understand them before buying any kind of annuity. For additional information please refer to the National Association of Insurance Commissioners Buyer's Guide for Deferred Annuities CLICK HERE and to the variable annuities guide at Investor.gov CLICK HERE
About the author: C. Thomas (Tom) Thames is a Certified Financial Planner(TM) professional with over 45 years of experience as an insurance agent, stockbroker, and investment adviser representative.
