To put it simply, an annuity is a contract between an individual (called the annuity owner) and an insurance company for a guaranteed interest-bearing policy with guaranteed annuity income options. * These income payments are made from the principal and interest accumulated within the annuity. The size of the payments depends on the size of the original premium used to purchase the annuity and the number of years the annuity is allowed to accumulate interest. Some payments begin within 12 months of purchasing the annuity while others begin after several years — depending on the type of annuity purchased. The purpose of most annuity plans is to assist an individual (called the annuitant) in planning for retirement by guaranteeing to provide an income for as long as he or she lives. However, many alternative payment options are available, and retirement planning is only one of the many reasons for purchasing an annuity. Visit the “ Annuity Advantages ” link to learn more about why an annuity may be the perfect investment opportunity for you.

(*It should be noted that in addition to the fixed annuities described on this website there are also variable annuities. However, due to the fees and risk of principal associated with variable annuities, they are not discussed on this site.)

What funds can be used to purchase an annuity?

An annuity can be purchased with either qualified or non-qualified funds.

Qualified funds are pre-tax dollars contributed to an IRS-approved savings plan such as an IRA, 401(k), 403(b), 457, Keogh, etc.

Non-Qualified funds are after-tax dollars that are simply held in a regular savings account or CD or are contributed to an after-tax savings plan like a Roth IRA.