4 Factors in Selecting an IRA Annuity

If you are trying to select an IRA annuity, there are many different things that you need to consider. Not every annuity is created equally, and they will each offer something different. Here are a few factors to consider when selecting an IRA annuity.

1. Interest Rate

One of the main factors that you should look at when selecting an IRA annuity is the interest rate. Some companies will subject you to interest rate risk by paying you the interest rate that is in the market at the time you purchase the annuity. Other annuities will allow you to average out the interest rate over the entire term of the annuity. This will lower the amount of interest rate risk that you are subjected to.

You also want to pay attention to the type of interest rate that you are being quoted. There are fixed interest rates and variable interest rates as well as interest rates that are tied to financial indexes. A fixed interest rate is going to pay you a certain amount over the life of the annuity. The variable rate will fluctuate depending on how your investments do. An index annuity will move up and down with a financial index, but it will have minimum and maximum rates that it will pay. Make sure you understand which type of interest rate you are being shown.

2. Financial Strength

When you invest in an annuity, you are going to be working with an insurance company. While insurance companies are traditionally strong financially, they could potentially go out of business. You do not want to invest in an annuity in your IRA for several years and then find out that the company is going under. You need to check out the financial ratings of several insurance companies before deciding on one. You should invest only in insurance companies that are rated A or A+. Investing in any companies that are below these ratings is not necessary and increases the amount of risk for you.

3. Fees

When looking at different annuities, you should also pay attention to the number and costs of fees that they charge. Annuities have a number of different fees that they could possibly charge you as an investor. Sometimes they will take out part of the money that you pay them in premiums. In other cases, they will charge you a percentage of the money that was earned from investments. Regardless of the fee structure, make sure that you understand the fees that you will be charged.

4. Death Benefit

You should also pay special attention to the death benefit that is provided by the annuity. Annuities all have different rules when it comes to the death benefits they provide. For example, an annuity might offer payments for the rest of your life or for 10 years beyond your death. In the second case, if you die, your loved ones will receive payments until 10 years have passed. Other plans might pay your loved ones a lump sum instead. Make sure that you read the details in this section of any annuity agreement so that you can ensure that your loved ones are taken care of.

blog comments powered by Disqus