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Fixed Annuities
Fixed annuities have a declared and fixed interest rate applied to the net funds in the contract. These types of contracts run for a specified number of years. The declared interest rate is adjusted periodically, usually annually and the contract allows for the monies to be distributed in a variety of different options should the owner desire an income fro the contract. However, most importantly, there is never the obligation to take an income from the contract and most contracts are simply held for a period time and rolled over into a new contract after the end of the initial period.

The reason the contract are generally rolled into a new contract is that the interest rate is usually very competitive with other fixed rate investments and it is tax deferred, meaning tax on the growth of the contract is only required to be paid upon surrender. Should the contract be converted to one of the income options, the IRS has a formula for determining the amount of each payment that would be taxable. Of course, if the annuity is part of any kind of IRS approved retirement plan such as an IRA, SEP-IRA or 401(k), the interest and principal are taxed as there was a tax deduction taken when the funds were placed in the account.

Fixed annuities are used quite frequently to fund retirement incomes from qualified plans. They are also becoming quite popular for a percentage of fixed savings because of the tax deferred feature. They compete with CDs and other similar fixed income term investments.