Simple table comparing most important features everyone should consider:
FIXED AND FIXED INDEX ANNUITIES VS. OTHER FINANCIAL INSTRUMENTS | ||||||
Feature | Annuity | CD | Taxable Bond | Municipal Bond | Stocks, Mutual Funds | Money Market |
Free from market risk. Principal and interest protection. | Y | Y | N | N | N | N |
Earnings free from current taxation while in instrument | Y | N | N | Y4 | N5 | N5 |
Interest earnings reinvested automatically with no current income taxation | Y | N | N | N | N | N |
Ability to make additional deposits | Y1 | N | N | N | Y | Y |
Tax liability on Social Security income eliminated on deferred accumulation | Y | N | N | N | N3 | N3 |
Liquid | Y | Y | Y | Y | Y | Y |
Flexible | Y | Y | Y | Y | Y | Y |
Penalty Free Withdrawals | Y | N | Y3 | Y3 | Y3 | Y3 |
Funds not reduced by commissions | Y | Y | N | N | N | Y |
Probate Avoidance | Y | N | N | N | N | N |
Guaranteed lifetime income with tax benefits | Y | N | N | N | N | N |
Totals | 11 | 4 | 3 | 4 | 4 | 5 |
1 Tax-Deferred Annuity is a Flexible Premium Deferred Annuity versus a Single Premium Deferred Annuity, additional deposits are allowed. 2 Some tax deferral can take place to the extent that capital gains take place. Dividend income and capital gain distributions are taxable, and cause tax liability to Social Security income in certain circumstances. 3 Sales commissions and/or market risk losses may occur. 4 Interest from qualified municipal bonds is usually save in a taxable account, thus diluting, degree of taxation does occur and the effect of compounding is reduced. 5 Capital gains taxation may occur. | ||||||
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