What are surrender charges?

Most deferred annuities impose a charge if you withdraw more than a free amount (often 10% per year) during the surrender period, commonly 5–10 years. The schedule declines over time. Never commit money to an annuity you may need before the schedule ends.

What happens to my annuity when I die?

It depends on the contract and payout election. Deferred annuities typically pay remaining value to named beneficiaries directly, bypassing probate. Some lifetime income elections end at death unless a period-certain or joint option was chosen — a detail worth confirming in writing.

How are annuities taxed?

Growth is tax-deferred. Withdrawals of gains are taxed as ordinary income, and withdrawals before 59½ may face a 10% federal penalty. Annuities funded with IRA money follow IRA rules. A tax professional should review any sizable decision.

Are the guarantees actually guaranteed?

Guarantees are contractual obligations of the issuing insurance company, backed by its claims-paying ability — not by the FDIC. State guaranty associations provide limited backstops. Carrier financial strength ratings are a legitimate part of due diligence.

What's the catch with income riders?

Income riders charge an annual fee and their 'roll-up rates' apply to a benefit base used only to calculate income — not money you can walk away with. They can be excellent or expensive depending on design. Ask to see the income amount in dollars, at your age, in writing.

Education series

Annuities: trading a lump sum for certainty

An annuity converts savings into promises — of growth, protection, or lifetime income. The craft is knowing which promise you need and exactly what it costs.

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The landscape

Four types of annuities, one sentence each

Every annuity is a variation on these four structures. Start by matching the structure to the job.

Fixed

Simplest

A declared interest rate guaranteed by the insurer, similar in feel to a CD. Predictable growth, no market exposure, modest rates.

Fixed Indexed (FIA)

Floor + cap

Interest credits linked to an index with a floor (often 0%) and a cap or participation rate. No direct market losses; limited upside.

Variable

Market exposure

Funds are invested in subaccounts that can gain or lose value. Often paired with optional income guarantees that carry ongoing fees.

MYGA

Rate lock

Multi-Year Guaranteed Annuity: a fixed rate locked for a set term, typically 3–7 years. The annuity world's answer to a long CD ladder.

What you're buying

The benefits — and what funds them

Every guarantee is paid for somewhere: in caps, fees, surrender periods, or foregone upside. That's not a flaw; it's the deal. Know the deal.

Income you can't outlive

Annuitization or income riders can convert savings into lifetime payments — the core problem annuities exist to solve.

Principal protection

Fixed and indexed designs shield principal from market losses, backed by the carrier's claims-paying ability.

Tax deferral

Growth inside an annuity is tax-deferred until withdrawal — useful once other tax-advantaged space is full.

Predictability

Known rates, known income, known timelines. For the part of a plan that must not surprise you, predictability is the product.

Side by side

Annuity vs. 401(k) / IRA

Not competitors — different layers of the same plan. Qualified accounts usually come first; annuities answer the income question those accounts leave open.

Generalized comparison for education; consult a tax professional about your situation.
Feature	Deferred Annuity	401(k) / IRA
Primary job	Convert savings into protected growth or lifetime income	Accumulate retirement savings with tax advantages
Contribution limits	None (non-qualified)	Annual IRS limits
Employer match	No	Often — always capture it first
Market risk	None in fixed/indexed designs	Yes, by design
Lifetime income option	Built-in (annuitization or riders)	Requires separate strategy or purchase
Liquidity	Limited during surrender period	Penalties before 59½, loans in some plans
Taxes on growth	Deferred; ordinary income on gains	Deferred (traditional) or tax-free (Roth)

FAQ

The fine-print questions

Surrender charges, beneficiaries, taxes, and what 'guaranteed' really means.

Will your savings cover the retirement you want?

Run the numbers in two minutes, then talk through the gaps with someone licensed to explain every option — not just one.

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