{
  "name": "Annuity Product Types \u2014 Mechanics, Costs & 'The Catch' \u2014 The Annuity Ledger",
  "description": "Structured, plain-English comparison of the annuity structures a U.S. retiree encounters (immediate/SPIA, deferred income/DIA, fixed/MYGA, fixed-index, variable, QLAC) \u2014 each with its one-liner, honest 'the catch', typical fees, liquidity, and tax treatment.",
  "asOf": "2026-08-21",
  "source": [
    "SEC & FINRA investor bulletins on variable and indexed annuities (FINRA Rule 2330)",
    "IRS Pub 575 (Pension & Annuity Income); IRS Pub 939 (General Rule); SECURE 2.0 Act QLAC provisions",
    "NAIC Annuity Disclosure (#245) and Suitability in Annuity Transactions (#275) Model Regulations",
    "State life & health guaranty association coverage (NOLHGA)"
  ],
  "creator": "https://annuityledger.com/#org",
  "license": "https://creativecommons.org/licenses/by/4.0/",
  "spatialCoverage": "United States",
  "types": [
    {
      "slug": "immediate-annuity",
      "name": "Immediate Annuity",
      "aka": "SPIA \u2014 Single Premium Immediate Annuity",
      "oneLiner": "Hand over a lump sum, start collecting a guaranteed paycheck within about a year \u2014 for life, or for a set period.",
      "theCatch": "It is irrevocable and illiquid. In a life-only option, dying early means the insurer keeps the balance. You are buying longevity insurance, not an investment \u2014 and giving up all access to the money to get it.",
      "typicalFees": "No explicit fee \u2014 the insurer's costs and profit are baked into the payout rate. That opacity is the point to watch: you cannot see the margin, so you shop the payout, not the 'fee'.",
      "liquidity": "Essentially none. Once issued, the decision is irrevocable and the lump sum is gone \u2014 there is no account to withdraw from.",
      "taxTreatment": "If bought with non-qualified (after-tax) money, each payment is part tax-free return of principal (the exclusion ratio) and part taxable interest. If bought with qualified (pre-tax) money, the entire payment is taxable income.",
      "keyFacts": [
        {
          "label": "Income starts",
          "value": "\u2264 12 months"
        },
        {
          "label": "Liquidity",
          "value": "None (irrevocable)"
        },
        {
          "label": "Explicit fee",
          "value": "None (built into payout)"
        },
        {
          "label": "Principal to heirs",
          "value": "Only w/ period-certain"
        }
      ]
    },
    {
      "slug": "deferred-income-annuity",
      "name": "Deferred Income Annuity",
      "aka": "DIA \u2014 Deferred Income Annuity / 'longevity annuity'",
      "oneLiner": "Buy a future paycheck today: pay now, lock the income, and turn it on years later \u2014 often at a much higher rate.",
      "theCatch": "You get nothing during the deferral, and if you die before (or shortly after) income starts, you may collect little or nothing without a death-benefit rider \u2014 which lowers the payout. It is a bet on your own longevity.",
      "typicalFees": "Like a SPIA, no explicit fee; costs are embedded in the payout rate.",
      "liquidity": "Very low. Most DIAs cannot be surrendered for cash; some offer limited liquidity riders that reduce the payout.",
      "taxTreatment": "Same exclusion-ratio treatment as a SPIA for non-qualified money; fully taxable for qualified money. A DIA inside an IRA that defers required distributions is a QLAC (see separate entry).",
      "keyFacts": [
        {
          "label": "Income starts",
          "value": "Future date (5\u201320+ yr)"
        },
        {
          "label": "Payout vs SPIA",
          "value": "Higher per dollar"
        },
        {
          "label": "Liquidity",
          "value": "Very low"
        },
        {
          "label": "Rate locked",
          "value": "At purchase"
        }
      ]
    },
    {
      "slug": "fixed-annuity",
      "name": "Fixed Annuity (MYGA)",
      "aka": "MYGA \u2014 Multi-Year Guaranteed Annuity",
      "oneLiner": "A tax-deferred CD-style contract: a guaranteed interest rate for a set number of years.",
      "theCatch": "You are locked in. If rates rise after you buy, you are stuck at the old rate or must pay a surrender charge to leave. And unlike a CD, it is backed by the insurer's solvency and the state guaranty association, not the FDIC.",
      "typicalFees": "No annual fee on most MYGAs. The cost is the surrender charge if you leave early, plus the opportunity cost if rates rise after you lock in.",
      "liquidity": "Limited during the term. Most allow ~10%/year penalty-free withdrawals; beyond that a surrender charge applies, typically declining over the term.",
      "taxTreatment": "Growth is tax-deferred; you owe ordinary income tax on the gains when withdrawn. Withdrawals before 59\u00bd may face a 10% IRS penalty on the gain.",
      "keyFacts": [
        {
          "label": "Guarantee term",
          "value": "2\u201310 years"
        },
        {
          "label": "Annual fee",
          "value": "Usually none"
        },
        {
          "label": "Penalty-free",
          "value": "~10%/yr typical"
        },
        {
          "label": "Backing",
          "value": "Insurer + guaranty assoc."
        }
      ]
    },
    {
      "slug": "fixed-index-annuity",
      "name": "Fixed-Index Annuity",
      "aka": "FIA \u2014 Fixed-Index Annuity (formerly 'equity-indexed')",
      "oneLiner": "Returns tied to a market index with a floor of zero \u2014 and a ceiling that quietly caps most of the upside.",
      "theCatch": "The word 'guaranteed' applies to your principal, not the returns \u2014 and the guaranteed growth you're shown is often on an income base, not your actual account value. Caps and spreads can be lowered after you buy. High commissions fund long surrender periods. This is the product most often mis-sold.",
      "typicalFees": "Often no explicit annual fee (the cost is the capped upside), but optional income/death riders commonly add ~1%/year. Sales commissions are high \u2014 frequently 4\u20137% \u2014 which funds long surrender schedules.",
      "liquidity": "Low. Surrender periods commonly run 7\u201310 years or longer, with steep early-exit charges.",
      "taxTreatment": "Tax-deferred growth; gains taxed as ordinary income on withdrawal; 10% penalty on gains before 59\u00bd.",
      "keyFacts": [
        {
          "label": "Downside floor",
          "value": "0% (principal protected)"
        },
        {
          "label": "Upside",
          "value": "Capped / participation-limited"
        },
        {
          "label": "Surrender",
          "value": "7\u201310+ years"
        },
        {
          "label": "Typical commission",
          "value": "4\u20137%"
        }
      ]
    },
    {
      "slug": "variable-annuity",
      "name": "Variable Annuity",
      "aka": "VA \u2014 Variable Annuity",
      "oneLiner": "Market investing inside an insurance wrapper \u2014 with optional guarantees, and the highest fee stack of any annuity.",
      "theCatch": "Fees stack and compound, quietly eroding returns; converting future gains into ordinary income can cost you versus a taxable account; and the riders are often over-sold to people who don't need them. Complexity is the product's best friend and your worst.",
      "typicalFees": "The heaviest in the category. Mortality & expense (M&E) charges, subaccount fund fees, administrative fees, and rider fees commonly stack to ~2\u20134%/year in total.",
      "liquidity": "Surrender charges typically apply for the first ~6\u20138 years; after that, subaccount value is accessible (subject to taxes and any rider consequences).",
      "taxTreatment": "Tax-deferred growth; withdrawals of gains taxed as ordinary income (not capital-gains rates) plus a possible 10% penalty before 59\u00bd \u2014 a notable drawback versus holding the same funds in a taxable account.",
      "keyFacts": [
        {
          "label": "Market risk",
          "value": "Yes (uncapped up & down)"
        },
        {
          "label": "Total fees",
          "value": "~2\u20134%/yr typical"
        },
        {
          "label": "Surrender",
          "value": "~6\u20138 years"
        },
        {
          "label": "Gains taxed as",
          "value": "Ordinary income"
        }
      ]
    },
    {
      "slug": "qlac",
      "name": "QLAC",
      "aka": "Qualified Longevity Annuity Contract",
      "oneLiner": "A deferred income annuity inside your IRA/401(k) that also pushes back required minimum distributions on the money used.",
      "theCatch": "It's a longevity bet locked inside your IRA: illiquid, and if you die early the tax and income benefits may never fully materialize without a return-of-premium option (which lowers the payout). The RMD deferral is real, but it's still your money you can't touch.",
      "typicalFees": "No explicit fee, like other income annuities; cost is embedded in the payout and the illiquidity.",
      "liquidity": "Very low by design \u2014 QLAC rules require it be a lifetime income contract, not a liquid account.",
      "taxTreatment": "Funded with pre-tax money, so income is fully taxable when it starts. The benefit is timing: deferring RMDs on the premium reduces taxable income in your 70s. Under SECURE 2.0 the premium limit is $200,000 (indexed for inflation), and the old 25%-of-balance cap was repealed.",
      "keyFacts": [
        {
          "label": "Premium limit",
          "value": "$200,000 (SECURE 2.0, indexed)"
        },
        {
          "label": "Income must start by",
          "value": "Age 85"
        },
        {
          "label": "RMD on premium",
          "value": "Deferred until income"
        },
        {
          "label": "Liquidity",
          "value": "Very low (by rule)"
        }
      ]
    }
  ],
  "disclaimer": "Educational only. Not individual financial advice. The Annuity Ledger does not sell annuities and is not an insurer or agent."
}