Here are some annuity ideas one might to consider instead of CDs:
Deferred annuities- These pay 3.75% to 4%, allow withdrawals up to 10% per year and you receive the lump sum at the end of term:
https://www.gainbridge.life/?&msclkid=40499b370675110fefcac6821c507ee7
State Guaranty Associations:
https://www.annuityadvantage.com/resources/state-guaranty-associations/
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I like that they’re not for retirees only, but do you get back all the prinicpal? Fees?
Regardless of your life stage, you’ve worked hard to build your savings and you want to protect them. A Gainbridge annuity could be a great fit if you want the confidence your money will be there when you need it, whether you’re saving for a down payment on a house or planning to live off your savings. To note, if you withdraw money from your deferred annuity before age 59½, you may have to pay the IRS an extra 10% federal tax on your earnings—not on your initial investment. But even factoring in this additional tax, you can still come out ahead compared to a savings account or CD. And you can skip this if you renew or transfer funds from your annuity.
Seems like a fairly good deal.
Money is liquid and has surrender fees f you withdraw early (above the 10% withdraw allowance). The insurer is B++ rated.
Looks like a 10% withdrawal penalty if you get the funds before age 59.5. So IRS treats it as a retirement savings vehicle.
Interest is taxed before principal if you take a withdrawal. SO an early withdrawal may be pretty much entirely taxed as income +10%.
The interest is tax deferred which can be a substantial boost and you can roll the annuity into another at the end of the term.
Looks like its available in about half of states.
This seems OK if you want to lock up your money for a long while and are at least near retirement. % is fair and its safe.
This is the part that’s still fuzzy for me. Can you not specify whether the withdrawal is from principal and not interest?
This is from a part of their short description: " Access. Deferred fixed annuities commonly provide some access to your principal without penalty (whereas CDs usually do not provide penalty-free access)." (from this info)
It’d make a significant difference if you could specify that you’re not withdrawing interest earned, only principal to keep compounding interest on earnings. But I could not find confirmation of this anywhere else in their product description.
This is an IRS issue that requires interest/profit to come out first whenever someone takes money out of an annuity.
That’s interesting that the IRS would have a different policy for annuities than for Roth IRAs where you can specify that you are withdrawing principal (and thus pay no tax if after 59.5). I just did not know which part of Pub 575 states the exact treatment of penalty-free (10% here) withdrawals from (deferred) fixed annuities.
Well eventually you’d have to pay tax on earnings. Even if you kept rolling over the annuity into another fixed annuity (tax-free 1035 exchange) eventually you’d run out of principal to withdraw. But if it is assumed that withdrawals are always interest first, then if you withdraw money equivalent to how much you earn in interest, you’re basically back to a CD-like situation where earnings are entirely taxed annually.
Unless you split your total fixed annuity investment into smaller ones maybe. Here’s a thought experiment, let me know if that’d work:
Say you invested $100k into 4% annuities and wanted that to form an income stream ($4k annual withdrawal). If you made a single annuity, each year your $4k withdrawal would be 100% interest so fully taxed. But if you made 2 separate fixed annuities of $50k each, and annually withdrew $4k from only one of them (instead of $2k from each), wouldn’t you save on taxes? It’d seem to me that because out of this $4k withdrawal, $2k would be interest and $2k would have to be principal, you’d only be taxed on $2k interest. Meanwhile, the other $2k in the other annuity would keep compounding interest untaxed. Rinse and repeat each year where you’d keep withdrawing from the same annuity as before (which will start generating even less interest due to lower balance).
Yes thanks for the answer. Putting infinite amounts of money into Roth IRAs would be better but I don’t think this option is available to everyone unfortunately.