Strong Tower Advisors · Educational guide
Annuity fees, surrender charges and guarantees
What an annuity can cost and how its guarantees work.
How we are involved. Annuities are insurance products. Strong Tower Advisors offers fixed and fixed indexed annuities through its insurance license (agency NPN 22216236) and Eduardo J. Valdes (individual NPN 8687827). Insurance and annuity sales are separate from investment advisory services provided through TLG Advisors, Inc., and TLG Advisors does not offer or supervise these insurance products. When we sell an annuity, we may receive a commission from the insurance company. Ask us how we are paid before you buy.
Surrender charges and liquidity
Many deferred annuities charge a surrender charge if you withdraw more than a stated free amount during the first several years. The charge typically declines each year until the surrender period ends. Some contracts also apply a market value adjustment that can raise or lower what you receive. Before buying, look at the surrender schedule year by year and compare it with when you might need the money.
Fees and costs
Costs vary by type and by contract. Read the contract, and for variable annuities the prospectus, for items such as:
- Mortality and expense risk charges and administrative fees (variable annuities)
- Underlying fund expenses in variable subaccounts
- Charges for optional riders, such as income or enhanced death benefits
- Caps, participation rates and spreads on indexed annuities, which limit credited interest rather than appearing as a fee
- Surrender charges and market value adjustments
- Commissions paid to the selling agent, which are usually built into the contract's pricing
What "guarantees" mean
Annuity guarantees, such as a minimum interest rate, an income payment or a death benefit, are obligations of the issuing insurance company and are subject to its financial strength and claims-paying ability. They are not backed by the FDIC or any federal agency. State guaranty associations provide limited coverage if an insurer fails; limits vary by state. In a variable annuity, guarantees from riders do not apply to the value of the subaccounts, which can decline.
Frequently asked questions
What is a surrender charge?
A fee charged if you withdraw more than an allowed amount, or cancel the contract, during the surrender period, which often lasts several years. The charge usually decreases over time. Check the schedule in the contract before buying.
Are annuity guarantees backed by the government?
No. Annuity guarantees are backed by the issuing insurance company and depend on its financial strength and claims-paying ability. They are not FDIC insured. State guaranty associations offer limited protection that varies by state.
How are annuity withdrawals taxed?
For a nonqualified annuity, earnings are generally taxed as ordinary income when withdrawn, and withdrawals before age 59½ may face a 10% additional federal tax unless an exception applies. Annuities held inside an IRA or employer plan follow that account's tax rules.
Sources
- SEC Investor.gov — Glossary: surrender charge
- SEC Investor.gov — Variable annuities
- SEC Investor.gov — Annuities
- FINRA — Annuities
- IRS Publication 590-B — Distributions from IRAs (Roth five-year rules and ordering)
Educational only. This guide is not individualized investment, tax, legal or insurance advice and does not recommend any account, transaction or product. Rules and individual circumstances vary. Verify current official information and consult qualified professionals.