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Understanding the Differences Between Investing in an Annuity, 401k, or CD

Most people that want a secure fixed investment look toward a CD as their ideal product. Often they don’t realize there are other options just as safe but often with more benefits than the CD provides. One of these products is a fixed annuity. There are several advantages over the traditional CD. One of which, is the tax-deferred growth of the annuity. Of course, if you’re young, this advantage can become quite a financial stumbling block.

That might sound a little odd, but it just the nature of tax deferred products and plans. The fixed annuity is a retirement product, just like an IRA or 401K. Like any retirement product, if you remove money before you’re 59 , you pay a 10 percent penalty. In the case of the annuity, it’s on the interest only. Younger people shouldn’t put all their money into retirement vehicles because of the tax laws and penalties.

For people closer to retirement, the fixed annuity is an ideal choice because of its tax-deferred status. During the working years taxes are higher due to a higher income. Once you retire, however, the drop in income means a lower tax rate. You can remove the interest and pay less.

Be aware, however, annuity tax rules include LIFO. That means, last in, first out. Interest is always the last thing into a contract, so it comes out first for tax purposes. When you remove money from an annuity, consider spreading it out over several years. If you need the funds quickly, remove enough of the funds to take half the interest in December of one year and the other part the following January. Of course, if you have a summer emergency, you simply bite the tax bullet and are happy you had the money you needed for your emergency.

Depending on the financial advisor you select, you’ll hear mixed messages on the use of a fixed annuity to fund an IRA or 401K rollover. The reason is the duplication of tax-deferral. While the purchase of an annuity because of it’s tax-deferred basis alone would make a foolish selection, if the interest rate is higher than other fixed instruments, then it is a logical candidate to fund a tax-deferred plan. This is especially true if you have more rights to access your money in the annuity.

Access to the funds is important in retirement. Most CDs don’t give you the ability to take any of the principal without penalty, just the interest. With a fixed annuity, many companies offer a 10 percent invasion right in addition to allowing you to take your interest, without any penalty attached.

You may be able to get the same effect by using different CD due dates and shorter lengths of time, but you’d have to break your money into smaller CD’s that wouldn’t get the higher interest rates.

It makes sense to look at fixed annuities as part of your financial plan. Just like any investment, you need to diversify and not put all your eggs in one basket, but a fixed annuity could be a very beneficial basket to use when you want a safe and secure investment.

Ryan N. Matthew educates investors with the latest advice, marketnews, and facts that investors should consider before choosing the right anuity insurance for their retirement. Choosing the best annuity is a big decision and you should get all the facts, and look at all the annuity options. Come see us to learn more about annuities, or to get the best fixed annuity quote.

Image from page 81 of “My sketchbook : v. 1 Pentonville” (1834)
annuity
Image by Internet Archive Book Images
Identifier: mysketchbookv1pe01cruiuoft
Title: My sketchbook : v. 1 Pentonville
Year: 1834 (1830s)
Authors: Cruikshank, George, 1792-1878
Subjects: Caricatures and cartoons Wit and humor, Pictorial
Publisher: London
Contributing Library: Dorothy H. Hoover Library, Ontario College of Art & Design
Digitizing Sponsor: Ontario Council of University Libraries and Member Libraries

View Book Page: Book Viewer
About This Book: Catalog Entry
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Text Appearing Before Image:
SBIA. CHOICE PROOF IMPRESSIONS. Price ios. 6d. (Size 23| x 17i) This beautiful steel engraving, has beenexecuted with great delicacy and care. It is avery charming picture, representing a child 01about ten years of age, clothed in white, with herpet bird dead in her lap, and the empty cagebeside her. TO BE OBTAINED OF JOHN PEARSON 46 PALL MALL LONDON SW CASH DRAPERS, ESTABLISHED HALF-A-CENTURY. STAGG, MANTLE & CO., Have always a large stock of Goods atconsiderably less prices than the West End Houses,their business being conducted on the ready moneyprinciple, buying for Cash, and selling for Cash. SILKS SHAWLS MANTLES COSTUMES LINENS SHEETINGS CALICOES DRESS GOODS CASHMERES MERINO SATTEENS RIBBONS HOSIERY GLOVES FLOWERS FEATHERS LACES UMBRELLAS PARASOLS TRIMMINGS GIMP HABERDASHERY. Family Mourning of every description, STAGG, MANTLE & Co., 2, 3, & 4, LEICESTER SQUARE, ADD 8, LEICESTER STREET, W,C. THE GRESHAM Life Assurance Society,St. Mildreds House, Poultry, London, e.c.

Text Appearing After Image:
FUNDS.Realized Assets (1831) …Life Assurance and Annuity FundsAnnual Income … … £2,964,914 2,907,789 595,459 BRANCH OFFICES. ENGLAND. Birmingham 18, Bennetts Hill.Bradford … Bank Chambers, Bank St.Brighton … 4, Pavilion Buildings.Bpistol … i, Broad Quay.Hull … Bank Buildings. LiverpoolManchester.Newcastle . NorwichSunderland. Gresham Buildings, Dale St.. 2, Cooper Street. Percy Buildings, Grainger Street West… Bank Plain.. 37, Fawcett Street SCOTLAND. Glascow 116, St. Vincent Street. 1 EdinburghDundee 74, Commercial Street. | Aberdeen 97, George Street.28, Market Street. IRELAND. Belfast …. Atlas Chambers, 3 Skipper Street. Moderate Rates of Premium. Liberal Scale of Annuities Loans granted upon Security of Freehold, Copyhold, and Leasehold . _ Property, Life Interests, and Reversions. Also to Corporate and other public bodies upon security or Rates, Ac. Prospectus, Reports, and Proposal Forms, can be obtained on application tothe Societys Agents and Branch Offices,

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