What is an annuity fund?

An annuity fund is an investment portfolio that holds the annuitant’s invested funds. It earns returns which then factor into the annuity’s payouts.

What is the surrender period?

The surrender period is a fixed span of time that the investor waits before they can withdraw any funds from their annuity. These periods vary and can typically last 6 – 8 years. Withdrawing before the period ends may result in a penalty, such as a surrender charge.

How are annuities taxed?

Annuities are tax-deferred plans, meaning your earnings grow tax-free. But your withdrawals or payments face different tax rules depending on your annuity type. If it’s a qualified annuity, then you pay normal income taxes on any payments. On the other hand, non-qualified annuity owners purchased their annuity with taxed funds. So, they may only owe taxes on their earnings or interest.Withdrawing from either before age 59 ½ can result in a 10% penalty tax on the withdrawn amount.

Who should and shouldn’t invest in annuities?

The answer depends on the individual’s financial situation, goals and investing style. Retirees may be more likely to benefit from annuities than young investors, but it varies. Consider speaking to a financial advisor or professional before purchasing an annuity.

What Is An Annuity And How Does It Work?