Annuities are being thought of by a growing number of people who are looking for new ways to make money in retirement. An annuity is a contract between a private person and a company that offers financial services or life insurance. The person pays a certain amount of money to the company, which invests it. In return, the company makes regular payments to the person, as set out in the contract.
Earnings from an annuity are not taxed until the money is taken out. This means that federal income taxes on gains are not paid until the money is taken out. Most annuities let you add money to them whenever you want. If you are thinking about buying an annuity, the Insurance Marketplace Standards Association (IMSA) says you should think about the following questions:
Is the annuity I'm thinking about the one I should get?
Make sure you know what you are getting. Review the product and decide if it fits your age, your personal financial needs and goals, and your willingness to take risks.
Will you need the money you're putting into this annuity in the next few years?
Annuities are meant to be used for a long time. If you take the money out in the next few years, you might have to pay fees or fines.
What will I get or lose if I switch from one annuity to another?
Compare your old product to the new one with care. Do both have the same benefits? Does the switch have a fee for giving it up? Will there be new times to give up?
Make sure that the insurance company you choose has a good name. Look for the IMSA logo as a good place to start. This logo can only be used by insurance companies that have gone through a thorough independent review and shown that they follow IMSA's strict Principles and Code of Ethical Market Conduct.
