Tax Facts

496 / What is a fixed annuity?

A “fixed annuity” is an annuity contract in which the value is reckoned in fixed units (in the U.S., U.S. dollars). By contrast, the value of a “variable” annuity is determined by the dollar value of its accumulation or annuity units, the value of which can and will vary over time.

There are three classes of fixed annuities: (1) fixed immediate annuities, (2) fixed deferred annuities, and (3) fixed deferred income (“longevity”) annuities.

A fixed immediate annuity is one that pays a defined amount of income each period (which may be level or increasing in accordance with a “cost of living” provision), commencing no later than one year after purchase, and persisting for a defined period (which may be the lifetime(s) of the annuitant(s)).

A fixed deferred annuity is one providing for the payment of an annuity income at some later time (perhaps many years after purchase); during the accumulation period (from purchase to the annuity starting date (ASD)), the contract will earn interest.

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