Many retirement planners find investing in annuities a good way to generate guaranteed income. Annuities allow you to set retirement distributions based on their type and how much you contributed. Annuity income is taxable and involves paying some fees.

Here is some information for managing your annuity income:

Looking at the Fees

Holding annuities is similar to other investments. You will have to pay fees on distributions.

  • Surrender Charge: If you collect income before the designated distribution date, you’ll have to pay a surrender fee. While charges may vary by provider and type of annuity, you should expect to pay 10% of your total invested funds for the first year. Surrender fees may drop by 1% each year.
  • Administrative Fees: Annuity managers typically charge fees for managing your accounts. These fees typically cover administrative costs to cover expenses. Fees may vary by firm.

Remember to Prepare for Taxes

Investing in annuities allows you to defer paying taxes on your investments. However, once you start receiving annuity income, you will have to pay income taxes. 

You may also have to address other tax issues, so researching tax rules or consulting with a tax professional is important. Here are two taxes you should consider:

  • Ordinary Income Tax: You will have to pay ordinary income taxes when you collect annuity income. Taxes may vary depending on if you receive a lump sum or ongoing payments.
  • Early-Withdrawal Tax: You will incur a 10% tax penalty if you withdraw money early from your annuity fund. Withdrawals from qualified annuity funds are considered part of retirement accounts if they are made before the age of 59½.

Taxes and fees depend on the type of annuity you bought and how much you contributed to it. If you would like to discuss your options and potential financial and tax obligations, we’re here to help.

Sources:

  • http://www.investopedia.com/terms/s/surrenderfee.asp?lgl=myfinance-layout
  • https://www.fidelity.com/viewpoints/retirement/shoppers-guide-to-annuity-fees
  • https://www.annuity.org/annuities/taxation/
  • http://www.investopedia.com/exam-guide/series-26/variable-contracts/annuity-distributions-charges.asp
  • https://www.irs.gov/newsroom/early-withdrawals-from-retirement-plans

Advisory services offered through Coppell Advisory Solutions, LLC dab Fusion Capital Management, which is registered as an investment advisor with the SEC and only transacts business in states where it is properly registered or is excluded or exempted from registration requirements. SEC registration does not constitute an endorsement of the firm by the Commission and does not imply that the advisor has achieved a particular level of skill or ability. All investment strategies have the potential for profit or loss. Third party ratings and recognitions are no guarantee of future investment success and do not ensure that a client or prospective client will experience a higher level of performance or results. These ratings should not be construed as an endorsement of the advisor by any client nor are they representative of any one client’s evaluation.

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