Annuities are financial contracts between you and an insurance company. You give the company money now and the company pays you an income at a later time. Annuities can be useful retirement tools.
Annuities have a special tax advantage under which you won’t pay income taxes on gains in the contract until you begin to withdraw money. Withdrawals may be subject to surrender charges and, if made prior to age 59 1⁄2, may be subject to a 10 percent federal tax penalty. Although it may sound complex, the concept is fairly simple as there are just two types of annuities and two payout options.
