What are they? How do they work?
What is a fixed index annuity? Don’t let the investment jargon put you off, Fixed Index Annuities are simpler than they sound. A Fixed Index Annuity is a tax-favored accumulation product issued by an insurance company. However, unlike fixed deferred interest rate annuities, a Fixed Index Annuity’s annual growth is tied to a market index like the Standard & Poor’s 500 rather than an interest rate.1
How do they work? A Fixed Index Annuity can be funded with either a large, one-time sum or regular payments over time. It may be attractive to those looking for an alternate retirement vehicle. That's because certain index annuities are subject to rate floors and caps. In other words, an index annuity can't exceed or fall below a predefined return level, even if the underlying market index performs outside of set parameters.2
How is this possible? The insurance company that issues the annuity bears the risk of a potential stock market decline. That's right! With a fixed index annuity, your original deposit can be structure, so it will not decline if the index performs negatively.
Another potential benefit is how fixed index annuities grow over time. Their growth is tax-deferred, meaning you don’t pay income taxes until you withdraw money from the annuity. But keep in mind, if you make withdrawals before you reach the age of 59 ½, you may be required to pay a 10% federal income tax penalty.3
Fees & Expenses. Sometimes, even the savviest investor could use a little guidance. After all, annuities can have contract limitations, fees, and charges, including account and administrative fees, underlying investment management fees, mortality and expense fees, and charges for optional benefits.
Most annuities have surrender fees that are usually highest if you take out the money in the initial years of the annuity contract.
If Fixed Index Annuities sound like something that may interest you, don’t hesitate to reach out to a financial professional soon. Who knows? This may just be the retirement vehicle you’ve been looking for.
Provided by Patriot Asset Advisors
Advisory services offered through: Patriot Asset Advisors, LLC an Ohio Registered Investment Advisor.
This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note - investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.
Opinions expressed are that of the author and are not endorsed by the named broker dealer or its affiliates. All information herein has been prepared solely for informational purposes, and it is not an offer to buy or sell, or a solicitation of an offer to buy or sell any security or instrument or to participate in any particular trading strategy. The information in this article is not intended as tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek tax or legal advice from an independent professional advisor.
- The Standard & Poor’s 500 Composite is an unmanaged index that is generally considered representative of the U.S. stock market. Index performance is not indicative of the past performance of a particular investment. Past performance does not guarantee future results. Individuals cannot invest directly in an index. Fixed Index Annuities also can be based on the performance of other stock market indexes.
- Fixed Index Annuities also can be based on a participation rate, which is how much of an index increase you actually receive.
- Withdrawals and income payments are taxes as ordinary income. The federal income tax penalty may not apply under limited circumstances. State income taxes also may apply.