You may have money sitting in ultra-conservative financial products while you wait out the ups and downs of the market. Yet it may cost you to sit on the sidelines. See how much.
Consider incorporating fixed annuities into your retirement portfolio. They combine downside protection with growth potential, as well as lifetime supplemental retirement income. Fixed annuities also offer considerable protection, such as guaranteed interest that can exceed other conservative financial products like certificates of deposit (CDs) and bank money market accounts. And, your contract value is accessible to you in a variety of ways.
Plus, when you purchase a fixed annuity contract with a portion of your retirement savings, you can benefit from the power of tax-deferral. In essence, double-compounding your interest.
Deferring taxes with annuities allows you to earn more interest on:
When you eventually make withdrawals, the amount you contributed to a fixed annuity is not taxed, but your earnings will be taxed at your regular ordinary income tax rate. Compare taxable, tax-deferred, and tax-free growth.
All of your money compounds year after year without any tax bill from Uncle Sam. That ability to keep every dollar working for you can be a big advantage over taxable financial products and can work to create more retirement income for you. Calculate the tax advantages of an annuity.
Withdrawals/surrenders have the effect of reducing the contract value and death benefit. Withdrawals/surrenders of taxable amounts are subject to ordinary income tax and if taken prior to age 59 1/2 an additional 10% federal penalty tax.
There is no additional tax deferral benefit for annuities purchased in an IRA, or any other tax-qualified plan, since these plans are already afforded tax deferred status. The other benefits and costs should be carefully considered before purchasing an annuity in a tax-qualified plan.