What Is a Retirement Annuity Fund?

A retirement annuity fund is a financial instrument that insurance companies sell.  You can buy and participate in a qualified annuity fund as a part of your retirement plan. Such policies enable you to enhance your savings to be used during retirement. IRS considers these as non- formal retirement accounts. Before you opt to put your money in one such fund, you should first understand what is a retirement annuity fund.

Identification

The fund comprises of a number of varied stocks with the common objective of enhancing value of savings of retirees. However, remember, that as it is a retirement annuity, there is a limit to the contribution you can make and you also get penalized for early withdrawals. The contributions you make by way of premiums to such funds are not taxed. Mutual funds that operate within the retirement pensions are known as retirement annuity funds

Purpose

A retirement annuity fund is designed to increase savings of retirees. However, the worth of a retirement annuity fund could keep fluctuating and there is no surety that it would certainly increase your savings by any fixed amount.

Benefits

An important advantage of retirement annuity funds is that you earnings are not taxable as long as you don’t remove your funds from that account. You have a total control over your investment. It simply amounts to your having freedom of switching over to other form of investments within the annuity.

Disadvantage

Retirement annuity funds do have a shortcoming. When you decide to take out your funds from the fund, you are required to pay capital gain tax at usual rates of income tax. Depending on the amount of income you derive from such funds, your total income may become legible for a higher tax bracket. It means that you may be liable to pay additional tax not only on your retirement income but also on your IRA and pension amount. Moreover, as such funds do not provide any guarantee for minimum growth, you stand to lose a substantial part of your retirement funds in case the performance of the fund is bad.

Considerations

Before you opt to invest in any retirement annuity fund it is imperative that you get prospectus of the company managing fund and understand working of that fund. You can know through the prospectus the type of stocks it intends investing in and expenses thereof.  You’ll also realize the objectives of the fund managers. All these points need consideration before making investment.

Now that you know what is a retirement annuity fund and its limitations and benefits, you can take a calculated decision for investing in this vehicle.

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