An annuity is another way to set aside retirement savings on a tax-deferred basis. Unlike IRAs and Keoghs, an annuity is the actual investment product.
An annuity is a contract you enter into with an insurance company. For a fixed sum of money, the insurance company promises to pay you income starting today (immediate annuity), or income sometime in the future (deferred annuity).
- An immediate annuity provides a stream of payments based on your age, gender and the amount of money invested, and the payment option you select. Immediate annuities are primarily for people who require a fixed monthly income and/or may have difficulty managing their own money.
- A deferred annuity allows you to contribute money with the potential to grow tax-deferred until you withdraw the money and its earnings at some future date.
Deferred annuities are used for retirement planning. You typically make one or more premium deposits, and the insurance company invests your premiums. You don't pay any tax on the internal buildup of the annuity's value until you begin taking distributions, usually during retirement. A number of payout options are available; the most common offers fixed payments for life.
IMPORTANT NOTE: Annuities are long-term investments. If you begin distributions before age 59½, you may be subject to a 10% penalty on the portion of the withdrawal that represents accumulated earnings. In addition, the earnings are subject to ordinary income tax. Finally, the annuity may impose surrender charges on withdrawals that exceed a certain amount during the early years of the contract) (see the section Understanding the Fees).
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Infinex and First Commonwealth Bank are not affiliated. Products and services made available through Infinex are not insured by the FDIC or any other agency of the United States and are not deposits or obligations of nor guaranteed or insured by any bank or bank affiliate. These products are subject to investment risk, including the possible loss of value.
*We do not provide tax advice. Consult your tax advisor.
*Diversification is a method of controlling risk. It does not assure a profit or the avoidance of loss.
**Dollar-cost averaging is a method of controlling risk. It does not assure a profit or the avoidance of loss. Investors should consider their ability to continue a dollar-cost averaging program in periods of declining markets.