Have you purchased annuities in the past? This ADVANCED section is dedicated to you. Please click on the question below to view the answers to the Frequently Asked Questions (FAQ). For more information, click the button below and complete the form to receive your free report from Annuity Associates.

The Advanced Guide to Annuities

At Annuity Associates, one of our main goals is to educate our clients so that they can make the best possible decisions for themselves and their families. 

If you are already familiar with annuities, you probably have questions about how to maximize your upside. Maybe you’re considering whether to begin receiving payouts or how to reduce the tax burden in estate planning. Below are the answers to some frequently asked questions so you can make the most of your purchase. 

If you have a fixed-rate annuity, no. Fixed-rate plans place the full responsibility for choosing investments on the insurance company issuing the annuity. That company then pays you a pre-decided fixed return. This decreases your financial downside, since you are guaranteed a return. However, your upside is limited if the market outperforms the rate of return.


However, if you have a variable annuity, you have access to various investment portfolios called subaccounts. Often, subaccounts are geared to a particular type of investor or a certain time horizon. This allows you some of the upside you might get by investing with a mutual fund, but your rate of return can suffer if there’s a bear market (a period of prolonged price declines). A financial professional can help you to decide which subaccounts best meet your financial goals and your risk tolerance.


Variable annuities offer tax-deferred growth. However, they often come with annual fees that can be much higher than the fees on your other investments. Your agent can help you decide if fixed-rate or variable annuities are best for you.

Exchanging your current annuity for a new one might be an option for you. However, you should read all the terms and conditions on your current policy to know what fees may apply. 

Every annuity has a surrender period — a timeframe during which you have to pay a fee (known as a surrender charge) if you sell or withdraw money from the account. Most surrender periods are between 5 and 10 years, but every contract is different. 

IRS code 1035 allows you to exchange your old annuity for a new one without incurring any new taxes. While this may be a good deal, you will likely start a new surrender period. Even if you were past the surrender period on your first annuity and able to withdraw money without a surrender charge, you would have to wait to do the same on your new policy.

Your best bet if you have an annuity that you’re not satisfied with is to talk to a financial professional to review your options.

Most annuities assume that their buyers are in good health and will live out an average life expectancy. If you are in poor health or have a lower than average life expectancy, you may want to purchase a fixed-period annuity as opposed to a policy for life. An annuity for 5, 10, or 20 years can help give you the security of a retirement income while making sure you don’t leave money on the table.

If you are in poor health and your spouse is healthy or vice versa, purchasing two separate annuities as opposed to a joint one may offer a better combined financial upside. Your licensed agent can help make sure you’re both protected.

More and more 401(K) plans are adding annuities as options now that the 2019 SECURE Act has passed Congress. However, the annuity options that your 401(K) offers may not reflect the options in the commercial marketplace or may have a structure that doesn’t work for you. 401(K) plan managers often aren’t skilled at helping you select an annuity that’s right for you.

Shopping the market means you can spot the best rates rather than settling for one. Only once you learn more about your available policies can you make an informed decision about the best choice. 

While IRAs offer many tax benefits in saving for retirement, you are required to start taking minimum payments from the first April after you turn 72. If you plan to continue working past 72, this can cause a big tax headache by pushing you into a higher income bracket.

Instead, consider putting the proceeds of your IRA into an immediate annuity. You can continue to receive tax benefits while ensuring a guaranteed retirement income. It’s best to pursue this strategy under the guidance of a financial professional, however. Different rules and caveats apply depending on the type of IRA and the type of annuity.

Annuities are generally subject to estate tax. Additionally, the annuity payments to your heirs will be taxed as income. However, an annuity can still be a lovely legacy to leave behind and an estate planning attorney can help you with the tax implications.

Once you annuitize your annuity, that is, begin to receive regular income payments from your annuity, you cannot adjust your payments or withdraw money from the principal. A financial professional can help you decide the best time to annuitize and make sure you take advantage of the flexibility to make changes in your policy before then.

No. Income riders typically incur an additional fee and have to be included in your initial annuity contract. They cannot be added to an existing contract or policy.

Income riders are optional features that you can include in an annuity contract to provide you with a guaranteed income past a certain date. Typically, income riders pay you a particular percentage of a benefit base. For instance, if you have a benefit base of $50,000 and your income rider pays you 5%, you would earn $2,500 a year.

Income riders can also increase your benefit base automatically. For instance, if your $50,000 contract had a rider that offered 6% growth compounded annually, your benefit base would be $53,000 after the first year. You cannot make a lump sum withdrawal against the increased amount like you might be able to with a CD, but you will receive your income based on that amount.

Death benefit riders are another type of rider you might wish to include in your policy. This can allow you to pay for your final expenses so your family doesn’t have to pay out of pocket. You can also pass along a lump sum or continuing payments to an heir or a charitable organization. Many people find death benefit riders helpful since you can pass along money to a beneficiary without them having to go through the lengthy process of probate.

Riders are typically separate calculations within your contract. If you have a deferred annuity, your policy statement will usually list your investment value, your surrender value, and your rider value.

Riders generally come with additional fees. A financial professional can help you choose the riders you need while minimizing additional fees.

At Annuity Associates, we know annuities can be confusing. Our professionals can help you learn more about your options to ensure financial security in your retirement.

An initial consultation with us is free, and you have no obligation to purchase any annuity product through us. Get in touch to learn more.

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