Annuities: What You Should Know
Options and riders
Like most products, annuities have evolved over time to address consumer needs, so there are now various options and riders.
- Some variable annuities have riders that allow investors the option of higher income payments if the value of the underlying securities rises, yet lock in a minimum payment if they fall.
- There can be options to withdraw without penalty some, or in certain cases all, principal if it's needed for medical or long-term care expenses. (Withdrawals reduce the principal value of the annuity, though.)
- Some options enable the payments to continue after the original owner's death, or allow the owner's beneficiary to get a lump-sum payment.
Special features and add-ons usually cost extra, but they can be worth the expense if they're right for your particular financial situation and retirement goals.
Annuities are tax-deferred investments, so you don't pay taxes on accumulated earnings until you withdraw your money, and then only your earnings are taxed as ordinary income. Annuities also don't have contribution limits, like IRAs and 401(k) plans.
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