Annuities: A Flexible Choice

If you diligently contribute the maximum to a 401(k) or other qualified retirement plan and you’re looking for another tax-advantaged way to put money away for the future, a nonqualified fixed annuity* may provide one answer.

Flexibility-Plus

Fixed annuities have several features that make them attractive to investors. First, their principal is typically protected from loss - not an afterthought when stock markets are volatile. You won't lose money if you don't trigger surrender charges.

Second, fixed annuities offer a guaranteed interest rate in the beginning of the contract, typically from one to three years, before rates are adjusted in subsequent years.

Third, contributions to nonqualified annuities may not be tax-advantaged, but any potential growth is tax-deferred until withdrawl. Finally, - and this could be the major attraction to high net worth individuals - nonqualified fixed annuities don't require you to take distributions by age 73 in 2023, as other qualified retirement vehicles do.

Annuities Add Flexibility

Thanks to the Secure Act 2.0, the age when required minimum distributions (RMDs) must begin was advanced from 72 last year to 73 in 2023. The RMD age jumps to 75 in 2033. A fixed annuity can provide income while money continues to potentially grow before you have to take RMDs, and it can also tide you over financially if you retire early.

Either way, a fixed annuity may play a role in a comprehensive retirement income strategy.

* Fixed annuity contracts charge fees, guarantee a minimum credited interest and pay a fixed income payment when annuitized. Annuity guarantees are backed solely by the claims-paying ability of the issuing life insurance company. Distributions of earnings from annuities are taxed as ordinary income and, if taken prior to reaching age 59½, may be subject to a 10% additional tax. Consult your tax advisor regarding your situation.