Annuities can be a complicated matter; this is why you need professionals that can help you decide what you need in your particular situation. An annuity (regardless of what kind it is) is a contract between you as the policy holder and an insurance company. Depending on what kind of an annuity you have purchased, the insurance company will provide you with certain contractual guarantees. The minimum investment in an annuity is usually around $5000.

The biggest benefit to an annuity is that you will never lose your initial investment, or any money you fund your annuity later on.

There are five main kinds of annuities:

Single Premium Deferred Annuity (SPDA): This is one of the most popular types of annuities.  Single premium refers to people doing just that; deposit one single payment. The point is to postpone taxes on this until the money is taken out. Your will have an agreement with your insurance company that gives you a fixed interest rate for a fixed number of years.

Immediate Annuity (SPIA): This annuity guarantees you an immediate fixed income for the rest of your life, and, in some cases, continuing for a certain period even after your death.  Who should buy this annuity?  Those looking for a guaranteed monthly income with some tax benefits or who have no beneficiaries to whom to leave their money.

Variable Annuity: What makes a variable annuity different? It is opposite of a fixed annuity and works by the accumulation of money via tax-deferment. Variable annuities give investors the chance to make more money with investing in equity. A major benefit is that if the owner of this annuity were to pass away, this plan guarantees the beneficiaries to get back at least the initial investment if not more.

Index Annuity: This is a type of fixed annuity but does not give you a fixed interest rate. This gives you the ability to connect onto the market index and only make money. As the market goes down, you do not risk the chance of losing money, your profit just stays at zero. Your profit will not be as high, if it goes up, but it is a safer way to go.

Tax Sheltered Annuity (TSA): TSA’s are purchased by many public schools for their employees as well as some non-profit organizations. This gives employees the ability to add money to their annuity without being taxed (until the money is eventually withdrawn.) This plan is very similar to a 401k and very desirable for a lot of these employees.

Did you know…In order to take advantage of the tax deferral the government does slap on a few restrictions, the primary one being that you have to be 59.5 in most cases to withdraw funds without a 10% penalty being imposed?