Annuities are considered a relatively safe financial tool, backed by the insurance company that issues them. That said, not every annuity is right for every individual. The key is finding one that fits your specific needs. That’s why it’s essential to work with a trusted financial advisor.

The key distinction between annuities and other retirement accounts lies in how funds are distributed.

With most retirement accounts, like IRAs or 401(k)s, you have the flexibility to withdraw money as needed. Annuities, on the other hand, are designed to provide consistent, scheduled payments—similar to a paycheck.

This income-style structure can help promote long-term financial discipline by making it harder to withdraw large sums all at once, offering greater protection against outliving your savings.

Annuity taxation can be a bit nuanced. Generally, withdrawals from annuities are taxed as ordinary income, which most people are already familiar with. However, things get more specific depending on how much you've contributed.

If you're withdrawing less than the total amount you originally invested (your premium), those portions are typically not taxed—only the earnings are. Because of these details, it's wise to have a financial advisor guide you through the tax implications to ensure you stay compliant and maximize your after-tax income.

Taking money out of your annuity before age 59½ typically comes with a 10% early withdrawal penalty, in addition to any regular income taxes owed. This can result in a substantial loss—especially considering how long you’ve likely been contributing to the account.

That’s why annuities are best funded with money you’re confident you won’t need until retirement. Our advisors at Net Financial can help you plan wisely to avoid unexpected penalties and preserve the value of your long-term income strategy.

Annuities are insurance-based products, so they require you to designate beneficiaries. This not only supports your estate planning goals but, when set up correctly, also allows your remaining annuity funds to bypass probate.

That means your loved ones can receive the funds more quickly and efficiently—without the delays or legal hurdles that often come with settling an estate. At Net Financial, we ensure your annuity is structured to align with your legacy and your family’s future.