What is a fixed annuity, a variable annuity?Simply put, both a fixed annuity and a variable annuity are amounts payable annually. More specifically, they are contracts offered by insurance companies which allow you to accumulate funds for retirement on a tax-favored basis and then, if you choose, receive a guaranteed income payable for life or for a period certain such as five, ten or twenty years. Usually the payments are made monthly, but many companies offer to make the payments quarterly, semi-annually, or annually. Most of this discussion will focus on the fixed annuity.How do they work?Both a fixed annuity and a variable annuity are vehicles for accumulating retirement savings. You pay a premium to an insurance company and they promise to pay you interest. Unlike other retirement savings instruments, as long as you keep your money with the insurance company, you are not required to pay income tax on your gains.This is what is known as ‘tax deferral.’ Only when you decide to withdraw your funds are your gains subject to income tax. A fixed annuity also differs from other retirement savings plans in another important way. When you decide to withdraw your funds, the insurance company will give… Read full this story
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