If you’re preparing for retirement, you are likely familiar with the broad range of tools that can be used to accumulate assets, manage income and provide a sound financial foundation. From IRAs to 401(k) plans to long-term care insurance and more, there are many financial strategies at your fingertips.
Annuities are one tool used by retirees and those approaching retirement. While annuities offer a number of specific benefits, they are often viewed with skepticism. They may seem confusing or overly complex. You may feel they pose risks or that they may not fit your situation.
If you’re like many Americans, a large portion of your retirement savings may be held in qualified accounts such as 401(k) plans, IRAs or other tax-deferred vehicles. These accounts are popular because they allow you to accumulate assets without paying taxes on the growth. In most cases, you avoid taxes until you take distributions. In the case of a Roth IRA, you may never pay taxes on your growth or distributions.
Of course, the trade-off of this tax-favored treatment is that you must wait until age 59½ before you can take distributions from a qualified plan. If you take distributions prior to age 59½, you may face a 10 percent early distribution penalty.
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