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Annuities: Investments
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Annuities are tax-deferred vehicles. Typically the earnings from investments in these accounts grow tax-deferred until withdrawal. However if an annuity is owned by a non-natural person, such as a trust or business, then earnings may not be deferred.
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Annuities are issued by Fidelity Investments Life Insurance Company and in New York by Empire Fidelity Investments Life Insurance Company®, NY, NY. Some annuities are issued by third-party insurance carriers. Fidelity Brokerage Services, Member NYSE, SIPC, and Fidelity Insurance Agency, Inc., are the distributors.
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Annuities are not risk-free investments, and are in some ways worse than stocks, because the investors are locked into the investments due to fees, structures, and tax consequences. Investors have to pay a surrender fee to withdraw their money, usually the amount of the commission. Although some do come with a guaranteed return upon death of the investor, there usually is no guarantee of value before death and in fact, the investments can be very aggressive and risky.
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Annuities play a very important role in retirement planning, enabling you to save money and taxes while eliminating the fear that you will outlive your savings. Basically an annuity is an investment contract or policy between you and an insurance company. There are many kinds of annuities - some tailored for income, some for future growth, and some as savings vehicles depending on your exact income and investment needs.
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Annuities market themselves on the basis of their ability to avoid taxation on investment growth through tax-deferral. While it is true that taxes on earnings are deferred within an annuity, this may not be achieved in a way that is quite as useful as it sounds. Read about the real pros and cons of annuity tax-deferral next.
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Annuities have become a more attractive investment option for retirement savings recently. Considered too expensive and inflexible in the past, they've become more popular as annuity providers have introduced low-cost products with a variety of investment options.
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