Using Annuities to Invest
Transcript, 2 minutes 35 seconds, for use during week of Nov.
Announcer: Invest Wisely comes to you from Iowa State University
Extension through a grant from the Investor Protection Trust,
providing investor education on the web at: investorprotection.org.
Description: Penny, Susan and Ira talk about factors to
consider when looking at annuities
Susan: Penny, we’ve talked about fixed, variable and equity-indexed
annuities and you said that annuities are most often purchased
for future retirement income.
Penny: That’s right. Typically, annuities offer
tax-deferred growth of earnings and make regular payments for
a fixed period of time, which can be useful in retirement.
Ira: And annuities are sold by insurance companies, correct?
Penny: Yes, but there are some differences among the three types. While
all three--fixed, equity-indexed, and variable-- are regulated
by state insurance commissions, in addition, variable annuities,
which are deemed securities due to the risk being borne by the
purchaser, are also regulated by the Securities and Exchange
Commission and the National Association of Security Dealers.
Susan: What are some of the factors to consider when looking
Penny: Earnings on annuities grow tax-deferred. Withdrawals
can be made after age 59 and a half but the withdrawals are taxed
as ordinary income at your regular tax rate, as opposed to long-term
capital gains like mutual funds. Withdrawals prior to 59
and a half are subject to income tax and a 10% penalty.
Ira: Are there other fees or charges to be concerned about?
Penny: There can be a lot of expenses. With variable annuities,
you may pay an annual fee, sales charges on the subaccounts and
an annual contract charge. There may also be surrender
fees if you withdraw funds early from any annuity.
Susan: What happens if I die and there’s still money in
my annuity? Does it simply go to my beneficiary?
Penny: Your beneficiary will have to pay the taxes on the earnings
Ira: Sounds like I should review the options carefully before
deciding whether annuities are the right choice for me.
Penny: That’s exactly right. If you consider an
annuity purchase, you’ll want to understand what you’re
purchasing, the long term nature of that purchase and the fees. Always
ask your agent for an explanation of anything you don’t
understand. And – this is important – comparison
shop before buying from a company.
Susan: Thank you, Penny. This is very helpful information.
Penny: You’re welcome and remember for more information
visit the ISU Extension website at extension.iastate.edu and
look for ‘invest wisely.’