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An ordinary annuity is when a payment is made at the end of a period. An annuity due is when a payment is due at the beginning of a period. While the difference may seem meager, it can make a ...
With a fixed annuity, the insurer agrees to pay you a set interest rate during the period when your investment is still growing. The insurer will also make periodic payments of a specific dollar ...
Each annuity is a contract between you and an insurance company: You provide the company money now, and they promise to pay you a steady income later, potentially for the rest of your life.
You can purchase an annuity by depositing a lump sum or by making a series of premium payments over time. People often invest in annuities as part of their broader retirement strategy .
If the payments are made at the end of the time periods, so that interest is accumulated before the payment, the annuity is called an annuity-immediate, or ordinary annuity. Mortgage payments are annuity-immediate, interest is earned before being paid.
In the U.S., the tax treatment of a non-qualified immediate annuity is that every payment is a combination of a return of principal (which part is not taxed) and income (which is taxed at ordinary income rates, not capital gain rates). Immediate annuities funded as an IRA do not have any tax advantages, but typically the distribution satisfies ...