With a fixed annuity, you are guaranteed a certain yield for a certain
period of time, after which the yield is re-set. Your account balance
always goes up and not down. Other advantages include:
* Tax deferral. The interest earned on a fixed annuity won’t be taxed
until money is withdrawn. Unlike IRAs, 401(k)s, etc., most fixed
annuities never require any distributions so the tax deferral may go
on as long as you wish.
* Reasonable returns. Yields on fixed annuities may be higher than
the yields on bank CDs and money market funds.
* Flexibility. You can exchange one annuity for another, tax-free,
under Section 1035 of the Internal Revenue Code.
* Annuitization. You can convert a fixed annuity into a series of
payments that will last a lifetime. Those payments will be partially
tax-free, as a return of your investment, until you have received all
of your original outlays.
The catch? Fixed annuities impose a 10 percent penalty on withdrawals
before age 59 1/2. Surrender charges may be in effect for several