Disadvantages of Fixed Annuities

Fixed annuities are designed as long term investment vehicle.  The one major disadvantage to owning a fixed annuity relative to other long term investments are the IRS and insurance company penalty fees.  These fees can be significant ONLY with premature or underage withdrawals.  The disadvantages are discussed below and you can find subsequent articles on the disadvantages to fixed annuities by clicking on these links:

• 10% IRS Penalty – If you withdrawal money prior to age 59.5 your withdrawal amount is subject to a 10% penalty similar to premature withdrawals from a retirement account

• Not Considered Capital Gains – Income is treated as ordinary income, not capital gains from a taxations standpoint

• Surrender Charges – the insurance company issuing the annuity usually imposes some sort of penalty for withdrawing the money prior to the maturity date.

• Single Premium – Most fixed annuities are what is called a “Single Premium” meaning you cannot add money after the first deposit.  There are other fixed annuities that allow you to continue to contribute money indefinitely; this is called a flexible premium annuity.
   

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