An annuity is a contract between you and an insurance company in which you make a lump-sum payment or series of payments and, in return, receive regular disbursements, beginning either immediately or at some point in the future.
Things To Know:
- Annuities are insurance contracts that promise to pay you regular income immediately or in the future—the latter is known as a deferred annuity.
- You can buy an annuity with a lump sum or a series of payments.
- Annuities come in three main varieties—fixed, variable, and indexed—each with its own level of risk and payout potential.
- The income you receive from an annuity is taxed at regular income tax rates, not long-term capital gains rates, which are usually lower.