I would just add that an annuity is a life insurance contract, and it automatically has a death benefit, although the benefit is minimal. That is how the policy qualifies for tax deferred income. Any income earned in an annuity is taxed as ordinary income, and no capital gains rates apply. Many people buy an annuity with the intention of keeping it for a long time, but the insurance companies know that you probably won't, so they end up making a lot of money on the surrender fees, which can extend up to 10 years. They guarantee that you will not lose money, but they don't tell you that the management fees and surrender fees do not count as losing money. An annuity is not an investment because you don't actually own any assets in your name. Everything is in the company's name with a contractual promise to pay you back.
|