If you are considering the option of an annuity, it is important that you should find out all about annuities pros and cons. Just like other financial options, there is an upside and also a downside to the use of annuities. The best aspect that makes annuities highly appealing and beneficial is that they offer lifetime income, which means that you will be entitled to a periodic income, which will be paid to you for as long as you live.This is an efficient way to get a tax benefit and be protected against inflation.
There are many types of annuities. The fixed index annuity is beneficial while each of the other types of annuities has its own characteristics, some of which may not entirely be in your favor.All annuities, fixed or fixed index, share several common benefits. Here’s a summary of what annuities can bring to your retirement strategy:
- Ideal for Estate Planning: Proceeds from annuities pass directly to your beneficiaries without the delay, expense, and publicity of probate in most states. If you’ve ever had a loved one’s estate go through this time-consuming legal process, you know just what kind of advantage this is.
- The Power of Tax Deferral: Because you do not pay taxes on earnings every year, your annuity is able to work harder thanks to tax-deferral. You will have to pay taxes on earnings when you withdraw your annuity’s gains, but at least you can decide when that happens.
- No Contribution Limits: Contributions to other retirement savings vehicles, like 401(k)s and Individual Retirement Accounts, are strictly limited. Annuities, however, offer tremendous flexibility. You can contribute as much as you want, up to the limits imposed by the insurer, to take advantage of tax-deferral or variable accounts inside the annuity. Plus, you can add to your annuity contract at any time.
For more information about annuities, visit our Annuity FAQ.