Indexed Annuities - They Hybrid Annuity For Retirement Investors

Newer solutions around the marketplace that rival the recognition of each the fixed annuity and variable annuity are the indexed annuities. Indexed annuities present the stability and safety of the fixed annuity plus the prospective for extra development and inflation fighting properties with the variable annuity.

The indexed annuities use a particular index, for example the S&P 500 because the basis for the development 401k rollover of the policy. They give a low base return if that particular marketplace doesn't increase or remains flat. If, however, the marketplace grows, then policy offers the owner a percentage with the development or the entire amount. Most policies contain a cap.

By using a percentage of development and cap around the return, in good years, the insurance company recoups the money they lose if the index drops and they pay the guaranteed rate. The lower base rate, cap and percentage of development are your payment for participation in the lucrative years.

Assess you situation to see if indexed annuities are right for you. The product often fits perfectly into your portfolio if you're a soon to retire or younger retiree and you want to avoid risk. For those that are in their advanced senior years, the higher guaranteed rate with the fixed annuity often serves their purpose better. However, if there's a need to diversify investments they should consider this choice.

Another factor in deciding which of the indexed annuities is best for your situation is your need to access the funds. Some people simply want the tax deferred growth provided by the annuity and a higher prospective for growth. They have enough assets to know they'll never use the funds and simply want to pass them to heirs. Penalty free access is of no importance to this type of person. If you worry that your emergency fund might not handle all the potential emergencies, or know you'll need some extra dollars in a few years, the penalty free access is important for you.

Just like the penalty free access, the surrender period penalties and length varies in importance from individual to individual. If you have specific plans for the money in future years, always check the length with the surrender period.

Of course, if you're younger than retirement, annuities might not be the best product for your situation. Since annuities have tax deferred status, they operate similar to an IRA when you withdraw funds. If you're under the age of 59 ½, you pay a 10 percent penalty around the growth of indexed annuities when you withdraw money. You also pay taxation around the growth at that time. Since the IRS considers the interest the first removed from any policy, any amount you take out has a tax penalty and taxation.

Look for the various percentages of participation and caps on the policy before you invest in indexed annuities. The index the policy uses as its basis is also important. The easiest way to compare indexed annuities is with the use of websites that show comparisons of several policies. These sites often don't sell policies but simply provide information for the concerned consumer.