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A fixed annuity is an insurance contract that pays a fixed rate of interest for a set period, usually ranging from one to five years. After the set term, a new fixed rate is offered for the next term. A fixed annuity has two main phases, the savings phase in which you invest money into the account, and the income phase in which the plan is converted into income and payments are received. Earnings within the contract are tax deferred, and are taxed upon withdrawal at income tax rates (similar to qualified retirement plans) and share with these plans the 10% early penalty tax for withdrawals made prior to age 59 and 1/2. If the annuity is held within a retirement plan it is known as a "qualified" annuity and distributions are totally taxable. If the annuity is purchased in the taxable account it is known as a "non-qualified" variable annuity and only the earnings are subject to tax. There are no minimum distribution requirements if the annuity is non-qualified. Your investment in a fixed annuity is funded by an insurance company's general account and is thus dependent on the claims paying solvency of the insurer. A fixed annuity is not considered an investment security, so it is not regulated by the SEC and there is no prospectus for the contract.
The Income Phase
Credit Ratings and State Guarantee Funds
- A.M. Best
- Fitch Ratings
- Standard & Poor's
- Weiss Ratings