What is Annuity?

An annuity is a contract with an insurance company that guarantees you a steady income stream, typically for life. In exchange for a lump-sum payment or a series of premium payments, the insurance company guarantees to make periodic payments to the annuitant, either immediately or at a future date, for life or a specified period. Annuities are complex products regulated at the state level by insurance commissioners and at the federal level by the SEC.

Annuities are categorized by their timing and return structure. Immediate annuities begin payouts within 12 months, while deferred annuities accumulate value before beginning payouts. Fixed annuities offer a guaranteed rate of interest, whereas variable annuities allow the owner to invest in sub-accounts (like mutual funds), making returns dependent on market performance. Index-linked annuities tie returns to market indexes.

Under the SECURE 2.0 Act, rules regarding Qualified Longevity Annuity Contracts (QLACs) were expanded. A QLAC is a deferred annuity purchased within a traditional IRA or 401(k) that delays RMDs. The lifetime premium limit for a QLAC was raised to $200,000 for 2025 and $210,000 for 2026, and the previous rule restricting QLAC premiums to 25% of the account balance was eliminated.