What Is an Annuity?
An annuity is a contract with a life insurance company: you deposit money, the insurer credits guaranteed or index-linked growth, and it can later pay income you cannot outlive. Fixed and fixed indexed annuities protect principal from market loss, and growth inside the contract is tax-deferred under IRC §72 until you withdraw it. The Infinite Wealth Group is a life insurance agency in Chattanooga, Tennessee, serving clients nationwide over Zoom. We compare fixed, fixed indexed, and immediate annuities across the carriers we represent, focusing on caps, participation rates, surrender schedules, and carrier financial strength. We do not offer variable annuities, which are securities. Annuities are a wealth preservation strategy for the years just before and after retirement, not a home for every dollar you have.
Principal Protection
Fixed and fixed indexed contracts never lose value to a market decline; the floor is zero or a stated minimum rate.
Tax Deferral
Growth compounds without an annual tax bill until withdrawn, under IRC §72.
Guaranteed Lifetime Income
Optional income riders pay a set amount for life, even if the account value reaches zero.
Compared Across Carriers
Caps, rates, surrender schedules, and ratings lined up from multiple insurers; no proprietary product.
How an Annuity Works
An annuity works in two phases. During accumulation, your premium earns interest or index-linked credits inside the contract, and no tax is due on that growth until money comes out. During distribution, you take withdrawals, turn on an income rider, or annuitize, which converts the balance into guaranteed payments for a set period or for life.
The guarantees come from the insurer's general account and its claims-paying ability, which is why carrier financial strength ratings matter. State guaranty associations add a further layer of protection up to limits that vary by state.
Because an annuity is an insurance contract, it is sold by a licensed insurance professional. Fixed and fixed indexed annuities are not securities. Variable annuities are securities regulated by the SEC and FINRA, and we do not offer them.
Types of Annuities We Compare
The right annuity type depends on when you need income and how much growth potential you want in exchange for giving up a fixed rate. The four contracts below are all insurance products with guarantees backed by the issuing carrier.
We do not sell or recommend variable annuities. They hold market subaccounts, can lose value, and are securities requiring a securities license, which an insurance-only agency does not hold.
| Type | How growth is credited | Principal protection | When income starts | Liquidity / surrender | Best fit |
|---|---|---|---|---|---|
| Fixed / MYGA (multi-year guaranteed annuity) | Declared interest rate locked for a set term, commonly 3 to 10 years | Yes, guaranteed by the carrier | Deferred; withdraw, renew, or annuitize at term end | Often a free-withdrawal allowance each year; surrender charge inside the term | CD alternative for money not needed for several years |
| Fixed indexed annuity (FIA) | Interest tied to an index such as the S&P 500, limited by a cap, participation rate, or spread; 0% floor | Yes, index losses never reduce the account | Deferred; optional lifetime income rider | Often a free-withdrawal allowance each year; multi-year surrender schedule | Growth potential above fixed rates without market loss |
| Immediate annuity (SPIA) | No accumulation; premium converts directly to payments | Payments guaranteed by the carrier | Within 12 months of purchase | Little or none; income is irrevocable | Turning a lump sum into a paycheck now |
| Deferred income annuity (DIA) | No account value; payout is fixed at purchase | Payments guaranteed by the carrier | A chosen date years in the future | Little or none once issued | Locking in future income, including longevity coverage late in life |
Guaranteed Lifetime Income Riders
A guaranteed lifetime income rider is an optional feature on a deferred annuity that promises a set annual withdrawal for life, regardless of what happens to the account value. The insurer tracks a separate benefit base, the number your income is calculated from, alongside your real account value.
Two numbers drive the payout. The roll-up rate grows the benefit base each year you defer, at a guaranteed simple or compound rate. The payout rate is the percentage of the benefit base you receive annually once income starts, and it rises with your age at activation. A high roll-up with a low payout can produce less income than the reverse, so we compare the actual dollar payout at your planned start age rather than the headline rate.
Riders carry an annual fee, commonly assessed as a percentage of the benefit base and deducted from the account value. Some contracts build the income guarantee in at no separate charge but with lower caps. The fee is worth paying when lifetime income is the primary goal and the guaranteed payout beats what you could safely withdraw on your own.
- ✓Benefit base: the notional value income is calculated from; not cash you can withdraw.
- ✓Roll-up rate: guaranteed growth of the benefit base during deferral years.
- ✓Payout rate: percentage of the benefit base paid each year for life; higher at older start ages.
- ✓Rider fee: annual charge, typically a percentage of the benefit base, that reduces the account value.
How Annuities Are Taxed
Annuity growth is tax-deferred under IRC §72: interest and index credits are not taxed until withdrawn, and there is no annual tax on the gain while it stays in the contract. That deferral lets money compound on a larger base than a taxable account earning the same rate.
Withdrawals from a non-qualified annuity, one funded with after-tax money, are taxed last-in, first-out. Gains come out first and are taxed as ordinary income; your original premium comes out after that tax-free. Taxable gain withdrawn before age 59½ also generally faces a 10% additional tax under §72(q), with exceptions such as death, disability, and substantially equal periodic payments.
A qualified annuity holds pre-tax money, such as an IRA or 401(k) rollover. Every dollar withdrawn is ordinary income, the early-withdrawal rules of §72(t) apply before 59½, and required minimum distributions apply once you reach the RMD age. If you annuitize a non-qualified contract, each payment is split between taxable gain and excluded premium using the exclusion ratio described in IRS Publication 939.
These are general rules current for 2026. Confirm how any withdrawal, 1035 exchange, or rollover affects your return with your CPA before you act.
Who Annuities Fit, and Who They Do Not
Annuities fit people within roughly ten years of retirement who want part of their savings protected from a market drop at exactly the wrong time. Sequence-of-returns risk, meaning a bad market in the first years of withdrawals, can permanently shrink a nest egg because withdrawals come out of a depleted balance. Moving the money that funds essential expenses into a guaranteed contract removes that risk from that slice.
In practice, most clients place a portion of retirement savings in an annuity and leave the rest where it is. The goal is a guaranteed floor, not an all-or-nothing decision.
- ✓Good fit: you want a guaranteed income floor for housing, food, and healthcare that Social Security does not fully cover.
- ✓Good fit: you have CD or money-market savings you will not need for several years and want a higher guaranteed rate with tax deferral.
- ✓Good fit: you hold a 401(k) or IRA and want to roll a portion into principal-protected growth without triggering tax.
- ✓Poor fit: you may need the full balance within the surrender period; surrender charges and market value adjustments would apply.
- ✓Poor fit: you want full stock-market upside; caps and participation rates limit indexed gains by design.
- ✓Poor fit: you have no emergency reserve outside the contract; an annuity should never be your only liquid money.
How We Compare Annuity Contracts Across Carriers
We compare annuity contracts by lining up the terms that actually determine your outcome, side by side, from the carriers we represent. There is no house product and no quota, so the contract that wins on paper is the one we recommend.
The review takes one call over Zoom. You leave with a one-page comparison and a plain explanation of what each contract guarantees, what it does not, and what it costs to leave early. There is no obligation to purchase.
- ✓Crediting terms: caps, participation rates, spreads, which index options are offered, and how often the carrier can reset them.
- ✓Guaranteed rates: MYGA rate and term, minimum guaranteed interest, and renewal rate history where available.
- ✓Surrender schedule: length, charge percentage by year, free-withdrawal allowance, and whether a market value adjustment applies.
- ✓Income rider math: actual dollar payout at your planned start age, not the roll-up headline.
- ✓Carrier strength: AM Best, S&P, and Moody's ratings, plus the state guaranty association limit where you live.
- ✓Fees and bonuses: rider charges, premium bonuses, and the strings attached to them, such as longer surrender periods or vesting schedules.
Why Compare Annuities With The Infinite Wealth Group
- ✓Independent life insurance agency: contracts are compared across multiple carriers with no proprietary product to push.
- ✓Brandt Hudson, a licensed insurance professional, reviews every contract personally, including the surrender schedule and rider math.
- ✓Plain-language explanations of caps, participation rates, and fees before you sign anything.
- ✓Insurance-only focus: fixed and fixed indexed contracts with guarantees, not securities.
- ✓Nationwide service over Zoom from Chattanooga, Tennessee.
Frequently Asked Questions
What is a fixed indexed annuity?
A fixed indexed annuity is an insurance contract that credits interest based on the movement of a market index, such as the S&P 500, without holding the index directly. Gains are limited by a cap, participation rate, or spread, and losses stop at a 0% floor, so a down year never reduces your principal. Growth is tax-deferred until withdrawn.
Is an annuity better than a CD?
It depends on your timeline. A multi-year guaranteed annuity often pays a higher fixed rate than a bank CD of similar length and defers taxes until withdrawal, while a CD is FDIC-insured and taxed annually. Annuities carry surrender charges and a 10% additional tax on gains before 59½, so CDs suit shorter horizons and annuities suit money you can leave alone for years.
How does guaranteed lifetime income from an annuity work?
An income rider or annuitization converts your contract into payments the insurer guarantees for as long as you live. With a rider, a benefit base grows at a roll-up rate during deferral, then a payout percentage tied to your age is applied to it each year. Payments continue even if the underlying account value is exhausted, backed by the carrier's claims-paying ability.
What are annuity surrender charges?
Surrender charges are fees the insurer deducts if you withdraw more than the free amount during the first years of the contract. Schedules commonly run several years and decline annually until they reach zero. Many contracts also apply a market value adjustment tied to interest rates. Match the surrender period to money you can genuinely leave in place for that long.
Are annuities taxed?
Yes, but not until withdrawal. Growth inside an annuity is tax-deferred under IRC §72. Withdrawals from a non-qualified annuity are taxed gain-first as ordinary income, and taxable gain taken before 59½ generally faces a 10% additional tax under §72(q). Qualified annuities funded with IRA or 401(k) money are fully taxable on withdrawal. Confirm your situation with your CPA.
Who should not buy an annuity?
Anyone who may need the full balance within the surrender period, who has no emergency savings outside the contract, or who wants unlimited stock-market upside should generally avoid annuities. They are also a poor fit for very short time horizons. Annuities work best as the guaranteed-income slice of retirement savings, not as a home for every dollar.
Do you sell variable annuities?
No. Variable annuities are securities regulated by the SEC and FINRA, and their account value can fall with the market. The Infinite Wealth Group is a life insurance agency and works only with fixed, fixed indexed, immediate, and deferred income annuities, which are insurance contracts with principal guarantees backed by the issuing carrier.
Can I roll my 401(k) or IRA into an annuity?
Yes. Pre-tax retirement money can be moved into a qualified annuity through a direct rollover or trustee-to-trustee transfer without triggering tax, and it keeps its tax-deferred status inside the contract. Withdrawals are then taxed as ordinary income, and required minimum distributions still apply. A direct transfer avoids the 60-day rollover deadline and mandatory withholding.
Sources and further reading
- 26 U.S. Code §72 – Annuities; certain proceeds of endowment and life insurance contracts
- IRS Topic No. 410 – Pensions and annuities
- IRS Publication 575 – Pension and Annuity Income
- IRS Publication 939 – General Rule for Pensions and Annuities (exclusion ratio)
- Texas Department of Insurance – Understanding annuities consumer guide
- National Organization of Life & Health Insurance Guaranty Associations – state coverage limits
Reviewed by Brandt Hudson, licensed insurance professional. Last verified September 4, 2026. This page is educational and describes insurance products and general tax rules; it is not tax, legal, or investment advice. Confirm your situation with your CPA or attorney.