LYCOS RETRIEVER 
Annuities
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How to Protect Yourself. Annuities can be confusing. Get the facts! You need to do your homework, before you invest. You need to know the details of any annuity being offered to you. You need to know whether the annuity fits your situation.
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Annuities are contracts sold by insurance companies designed to provide payments to policyholders at specified intervals. Policyholders are taxed only when they start taking distributions or if they withdraw funds from their accounts.
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Annuities have features and benefits that can help you with a lifetime of investing and subsequent distribution of income. With tax deferral, you'll ... enjoy the freedom of controlling when you pay taxes on earnings. With the optional riders, available for an additional cost, you can guarantee your principal and even lock in the highest anniversary value over time.
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Annuities are not FDIC insured, not a bank guarantee, and may lose value. There is a surrender charge imposed generally during the first 5 to 7 years that you own the contract. Withdrawals prior to age 59-1/2 may result in a 10% penalty, in addition to any ordinary income tax. The guarantee of the annuity is backed by the financial strength of the underlying insurance company.
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Annuities have to use the LIFO (last in, first out) method of accounting. In other words, you take out the earnings before the principal. Withdrawals will be taxed as income until all the earnings have been taken out. The principal can then be taken out tax-free.
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Over time, insurance companies modified and enhanced both types of annuities; ... their basic premise has always remained the same. And because annuities are issued by an insurance company, Congress allows them to grow tax-deferred under current tax laws.
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