By: Destiny Kelley

Choosing a fixed annuity or variable annuity can be a difficult and confusing decision. Would annuities be a more decisive choice or should your money be invested elsewhere?

A fixed annuity is like a CD that is offered by insurance companies and brokerage firms. You deposit a certain amount of cash and the insurance broker agrees to pay a certain interest rate over a course of a period of time.

Unlike an annuity, the money is not taxed until the money is withdrawn. If the annuity funds are withdrawn before you turn the age of 59 ½, you will pay a penalty fee plus income taxes.

 
A variable annuity is like a mutual fund. An investor can place money in more than one account. The big differences between mutual and variable funds are the fees that are charged. The investment fees and the insurance charges can run up the cost of a variable annuity more than 2% a year. Fixed and Variable annuities will not be taxed until the earning is withdrawn. When this happens the earnings will be taxed as original income which can run as high as 35%.

A mutual fund that is set at long term capital gains rates cannot be taxed over 15%. This gives mutual funds a better advantage because less of your gains will go to the IRS. If you are getting closer to your retirement age you may want to consider a payout, or an immediate annuity. A lump sum of cash will guarantee an income for as long as you are alive.

Fixed annuities are popular and flexible payment terms but you have to be careful on high maintenance fees. Commissions do not reduce too much of the income. Try investing in small treasuries. If you feel that you do not have the confidence to invest on your own, I recommend fixed annuities.

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