Using annuities as part of a financial plan can help build retirement income, while helping to minimize taxes.
In any financial plan, consideration needs to be given to the impact of taxes on one’s income and their estate. If there is a certainty in this world, it’s that, whether at the California state level or federally, we will be taxed. If you are retired or nearing retirement, you will most likely want to minimize your taxes and maximize your spendable income.
Many people are unaware that there are financial strategies designed to help reduce taxes, while, at the same time, potentially increase their retirement savings. One way this could be accomplished is through the use of fixed index annuities (FIAs). An FIA, like all annuities, is a long-term investment vehicle geared toward generating retirement income. They have a “fixed” or guaranteed minimum interest rate, which does not change over the life of the contract and invested money can grow on a tax-deferred basis*. An FIA may also tie to one or more stock market indexes to add to interest income.
Of course, there are risks and limitations with FIAs and annuities in general, such as earnings being taxable as ordinary income when withdrawn and if taken before age 59 ½ may be subject to a 10 percent federal tax penalty, potential investment losses due to economic conditions and other factors, and interest fluctuations based on participation and cap rates. Financial Freedom Wealth Management Services can help you understand the ins and outs of FIAs and other annuities to see how they might fit into your financial plan.
*Fixed annuities are long-term investment vehicles designed for retirement purposes. Gains from tax-deferred investments are taxable as ordinary income upon withdrawal. Guarantees are based on the claims paying ability of the issuing company. Withdrawals made prior to age 59 ½ are subject to a 10% IRS penalty tax and surrender charges may apply.
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