Types of Annuities: Fixed, Indexed, Immediate, Deferred

Start with two questions

First, when do you want the income to start: now, or years from now? Second, is the growth rate set in the contract, or tied to a market index? Those two answers sort nearly every annuity into its type. Everything else, the fees, the access rules, the guarantees, follows from them.

Immediate annuities pay income right away

An immediate annuity, often called a single premium immediate annuity, trades one lump sum for income payments that start within a year, often for the rest of your life. The tradeoff is commitment: once the money goes in, you generally cannot take it back out as a lump sum. It fits a person who has a sum set aside and wants a steady check more than flexibility.

Deferred annuities build first, then pay

A deferred annuity has two phases. During the accumulation phase your money grows, either at a set rate or tied to an index. During the payout phase you turn the balance into income. You choose when the second phase starts, which is why this type suits people still years from retirement.

A QLAC is a deferred income annuity inside a retirement account

A qualified longevity annuity contract, called a QLAC, is a deferred income annuity bought inside a retirement account. It has to sit in a traditional IRA or an employer plan such as a 401(k). You move part of the account into the contract, and the income starts later, on a date you choose. It cannot start later than the month after you turn 85. Until the income starts, the money in the QLAC is left out of the balance used to figure your required minimum distributions. Your RMDs are smaller in the meantime. The limit for 2026 is $210,000 in premiums per person, across all your accounts, under IRS Notice 2025-67. The old rule that also capped a QLAC at 25 percent of your account balance is gone. A QLAC only delays the tax. When the income starts, the payments are taxed as ordinary income, and they count toward the RMD on the QLAC itself. It fits a person who wants income late in life, and a smaller RMD in the meantime. This is general information, not advice about your own accounts. A QLAC cannot be a variable or indexed contract, and the contract has to meet the IRS rules to qualify.

Fixed annuities pay a set rate

A fixed deferred annuity, including a multi-year guaranteed annuity, credits a guaranteed interest rate for a set term, often 3, 5, 7, or 10 years. The rate is stated in the contract. The insurer, not the market, carries the growth risk. Current sample rates are in the annuity rates guide.

Indexed annuities link interest to an index

A fixed indexed annuity credits interest based on a market index, such as the S&P 500, with a cap, a participation rate, or a spread limiting the credit. When the index falls, the credit is typically zero rather than negative, so the principal is protected from market loss. The tradeoff is that the credit is usually less than the index gain itself. A worked example is in the fixed versus indexed guide.

Variable annuities are securities, and I do not offer them

A variable annuity puts your money into subaccounts that invest in the market, so the value can fall as well as rise. Variable annuities are registered securities. Selling them requires a securities license, which is outside a North Carolina life insurance license. If that is what you need, I refer you to a licensed securities professional who explains their own services and fees first. I do not earn anything from the referral.

Surrender periods limit early access

Most deferred annuities have a surrender charge period, often 5 to 10 years and sometimes longer, during which taking out more than the contract allows triggers a charge. The charge usually declines over time. On top of that, a taxable withdrawal before age 59 and a half can face a 10 percent additional federal tax. Keep money you may need soon out of an annuity.

Who each type fits

Fixed fits a saver who wants a stated rate and no market risk. Indexed fits a saver who wants some link to market gains with principal protection. Immediate fits a retiree who wants a check for life and can commit the sum. Deferred fits a person years from retirement who wants tax-deferred growth. Variable fits an investor who accepts market risk and works with a securities professional.

Your records checklist

1. Decide when you want income: now or years from now.
2. Ask whether the rate is guaranteed or linked to an index, and what limits the credit.
3. Read the surrender period and the charge for taking money out early.
4. Ask what is guaranteed, what is illustrated, and what the contract pays if you die.
5. Check that the money can stay untouched for the full surrender period.

Common questions

What is an annuity in simple terms?

A contract with an insurance company. You pay a lump sum or premiums, and the company pays income now or later, on the terms the contract states.

What is the difference between a fixed and an indexed annuity?

A fixed annuity credits a rate the contract states. An indexed annuity credits interest based on a market index, limited by a cap or participation rate, with principal protected from market loss.

Can I lose money in an annuity?

In a fixed or indexed annuity, the principal is protected from market loss, but surrender charges and taxes can still reduce what you take out early. In a variable annuity, the value can fall with the market.

Do you sell variable annuities?

No. Variable annuities are securities and need a securities license. I offer fixed and fixed indexed insurance products, and I refer securities questions to a licensed professional.

Sources and current instructions

Check the tax year and any later updates before acting. These are the primary sources used for this guide.

• NAIC: Annuities
• IRS Publication 590-B: Distributions from IRAs
• IRS: Topic 558, additional tax on early distributions