Fixed Index Annuity Rates November 2022

A fixed index annuity is a type of deferred annuity that offers upside potential when the market performs and downside protection from a potential market downturn.

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What is a Fixed Index Annuity?

A fixed index annuity is a type of deferred annuity that offers upside potential when the market performs and downside protection from a potential market downturn. Rather than guarantee an annual interest rate like a fixed annuity (“CD-Type Annuity“), an indexed annuity credits interest based on the performance of an external market index (such as the S&P 500 ).

NOTE: You may also hear fixed index annuities referred to as:

  • FIA
  • Equity Indexed Annuity
  • EIA
  • Hybrid Annuity
  • Indexed Annuity

Fixed Index Annuities have less risk than variable annuities because you can’t lose value due to poor market performance. However, they have more risk than a fixed annuity because they come with a guaranteed interest rate; indexed annuities only guarantee the worst you can do in any given year is earn zero percent.

The below chart illustrates where a fixed index annuity falls between a fixed annuity and variable annuity as well as other investment vehicles on the investment continuum. Indexed annuities have increased in popularity largely because they offer the most growth potential of any investment that provides principal protection.

Investment continuum chart showing where an index annuity fits relative to other investment types

How do Fixed Index Annuity Rates Work?

At each annual contract anniversary, the performance of the market index you’ve selected is measured. If the index performs (increases in value) you get a percentage of the growth. 

The amount of the index performance your FIA is credited to is determined by the crediting method you’ve selected. There are a couple of different index annuity crediting methods but Annual Point to Point is by far the most common so for time’s sake that’s the one we’ll focus on here.

Fixed index annuity cartoon drawing

How do Index Annuities Credit Interest?

Annual Point-to-Point Index Annuity Crediting Method
Annual point-to-point uses the index value from only two points in time making it simple and straightforward to calculate.
 

Calculating index performance using the annual point-to-point method:

  • The index value from the beginning of the crediting period is subtracted from the value of the index at the end of the crediting period. 
  • The percentage of change is calculated.
  • If the value at the end of the year is higher than the beginning of the year crediting component is applied to determine your interest.

Chart illustrating how annual point to point fixed index annuity crediting method is calculated

Annual Point to Point Index Crediting Calculation:

  1. 107,000(ending value) minus 100,000(beginning value) = 7,000 positive change in index value.
    7,000 (index value change) divided by 100,000(beginning index value) = 7% index performance.
  2. A crediting component, or limiting factor, is then applied to the index performance to determine your credited interest rate for the year.

Index Annuity Crediting Methods

One of these three index annuity crediting methods will be used to determine your fixed index annuity rate credited in any given year.

  1. Spread – The index performance minus the spread.
  2. Cap – 100% of the index performance up to the cap.
  3. Participation Rate – The index performance multiplied by the participation rate.

Assuming a 5.00% cap, 2.00% spread and a 75% participation rate let us calculate the amount of annual interest a fixed index annuity would be credited using the 7% index performance in our example above. 

  • CAP= 5% Interest credited (100% of index performance up to the cap)
  • Spread = 5% Interest credited (index performance minus the spread
  • Participation Rate = 5.25% Interest Credited (index performance

Available Indexes in an Index Annuity

Annuity CompanyAM Best RatingStock Market Index Page
Sentinel Security LifeB++Goldman Sachs Aging of America Dynamic Balance Index (Ticker: SOLAOA)
AIGAS&P 500 (Ticker: SPX)
AIGAAQR DynamiQ Index
AIGAMerrill Lynch Strategic Balanced Index (MLSB)
AIGAPIMCO Global Optima Index PIMGOPT
AIGARussell 2000 Small Cap Market Index .RUT
AIGAMSCI EAFE - Non U.S. and Canada Index EAFE
Allianz LifeA+S&P 500 (Ticker: SPX)
AllianzA+Nasdaq 100 Index
AllianzA+Blackrock iBLD Claria Index (IBLDCLRA)
AllianzA+PIMCO Tactical Balanced ER Index
AllianzA+Bloomberg US Dynamic Balance Index II
American EquityA-S&P 500 Daily Risk Control 2 8% Index
American EquityA-Dow Jones Industrial Average (DJIA)
American EquityA-S&P 500 Dividends Aristocrats Index
American EquityA-S&P 500 (Ticker: SPX)
AtheneAAiPex Performance Index
AtheneAS&P 500 Daily Risk Control 2 8% Index
AtheneANasdaq FC Index (BOFANFCC)
AtheneABNPMAD5 Index
AtheneAS&P 500 Daily Risk Control 5% Index
EquiTrustB++Barclays Focus50 Index (BXIIF50E)
Fidelity & GuarantyA-S&P 500 (Ticker: SPX)
Fidelity & GuarantyA-iShares Real Estate ETF
Fidelity & GuarantyA-Balanced Asset 10 Index
Fidelity & Guaranty A-iShares Core S&P 500 ETF
Fidelity & Guaranty A-Balanced Asset 10 Index. Ticker: CIBQB10E
Fidelity & Guaranty A-Barclays Trailblazer Sector 5 Index (ticker BXIITBZ5)
Global AtlanticAPIMCO Balanced Index PIMBAL
Global AtlanticAMSCI EAFE Non U.S. and Canada Stock Index EAFE
Global AtlanticARussell 2000 Small Cap Index .RUT
Global AtlanticABlackrock Diversa Volatility Controlled Index ^IBLDV7E
Global AtlanticAFranklin U.S. Equity Index FTUSLX
Great AmericanAS&P 500 Daily Risk Control 10% Index
Great American AIShares U.S. Real Estate ETF 1YR
Great AmericanAS&P 500 U.S. Retiree Spending Index
Lincoln Financial A+Fidelity AIM Dividend Index
Lincoln Financial A+S&P 500 Daily Risk Control Index 5%
NationwideA+S&P 500 Daily Risk Control 5% Index
NationwideA+S&P 500
NationwideA+AB Growth and Value Balanced Index
North AmericanA+S&P 500 Low Volatility Daily Risk Control 5%
North AmericanA+S&P MARC 5% ER
North AmericanA+Fidelity Multifactor Yield Index 5% ER
North AmericanA+S&P 500 (Ticker: SPX)
North American A+NASDAQ 100 Index
Oxford LifeA-S&P 500 Index
Oxford LifeA-2 Year Citi Flexible Allocation Index CIISFM6E
PrincipalA+S&P 500 Index SPX
Reliance StandardA+S&P 500 Index
SILAC InsuranceB+Credit Suisse RavenPack
The StandardA+S&P 500 Index SPX
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Fixed Index Annuity 1035 Exchange Guide

The Internal Revenue Service (IRS) allows you to exchange an annuity policy that you own for a new annuity policy without paying tax on the investment gains earned on the original contract.
This can be a substantial benefit. 

This rule is governed by Section 1035 of the Internal Revenue Code which is why these are called “1035 Exchanges.” Below is a direct link to the complete text of the code.

U.S. Code > Title 26 > Subtitle A > Chapter 1 > Subchapter O > Part III > Section 1035

1035 Exchange Rules

There are a couple of important rules that must be followed in order to receive the benefits of a 1035 Exchange.

  • The tax code says that the old annuity policy must be exchanged for a new policy – you cannot receive a check and apply the proceeds to the purchase of a new insurance policy.
  • You can 1035 exchange from a life insurance policy to an annuity
  • You can 1035 exchange from an annuity to a long-term care policy under the Pension Protection Act of 2006
  • You can not 1035 exchange from an annuity to a life insurance policy

Here is an example of an actual 1035 Exchange form you would need to complete to move from one annuity to another via a 1035 Exchange.

Fixed Index Annuity Taxation

The deciding factor on how your annuity will ultimately be taxed depends ultimately on the money you used to buy it. Whenever a client asks us how are annuities taxed, our first response is where did you get the money to buy it?

Since we are talking about taxes there is no way to say with certainty exactly how your annuity will be taxed. Tax laws and tax rates can and do change all the time.

However, we can make very educated guesses about certain scenarios based on how annuities have been and are taxed currently. First, we will look at the types of funds you can use to purchase an annuity and explain the differences in how they are taxed.

Roth IRA Taxation

If you purchase an annuity with funds from a Roth individual retirement account (IRA) or Roth 401(k) it is very likely you won’t have to pay federal income tax at all on the money when you withdraw it from your annuity. That includes the principal and interest.

How Are Qualified Annuities Taxed?

An annuity purchased with qualified funds is considered a qualified annuity. Qualified funds are monies that you have never paid taxes on such as a traditional IRA or a traditional 401(k). It would be nice if the IRS would allow going from tax-deferred to tax-free but that is not the case.

When you begin to make withdraws from a qualified annuity you will pay normal federal income taxes. Meaning, that 100% of your annuity is treated as ordinary income and 100% of the funds will be taxed when they are taken.

Non-Qualified Annuity Taxation

A non-qualified annuity is an annuity purchased with after tax-dollars such as money from a taxable personal savings or checking account or a personal brokerage account.

If you own a non-qualified annuity, you will only pay income tax on the gain in your contract but not the money you used to purchase the annuity. The money used to purchase a non-qualified annuity is considered the “basis”. Insurance companies keep track of your “cost basiswhich is the original amount used to purchase an investment.

This “cost-basis” is the amount of money on which you will not pay taxes because you’ve already taxes on it once. 

Fixed Index Annuity Buyers Guide

Available Indexes: The stock market indexes are available in the index annuity. We have a list of available stock market indexes available at each insurance carrier for simplicity.

Duration: Typically the longer contract you purchase the higher your guaranteed interest rate will be. But that is not the case, especially given the current inverted yield curve.

Liquidity: Most all fixed annuities have some type of annual free withdrawals, but the amount available varies by product. You’ll see most of the fixed annuities at our marketplace provide interest-only withdrawals annually. Others allow for 10% Free Withdrawals (10% of the previous year’s account value) annually.

Insurance Company’s Financial Rating: It is very important to consider an insurance company’s financial rating because it is an indicator of its ability to fulfill financial commitments to its policyholders. Usually, a lesser-rated insurance company will offer higher fixed annuity rates, but that is not always the case. 

Pros and Cons of Indexed Annuities

Fixed Index Annuity Advantages

#1 Gain Compounded Earnings While Deferring Income Taxes

#2. Earn Higher Interest Rates

#3. Make Contributions to Your Tax-Deferred Account

#4. Protect Your Principal from Downturns in the Credit Markets

#5. Retire Early Without Penalty

#6. Satisfy Required Minimum Distributions (RMDs)

#7. Retire with a Lifetime Income

#8. Lifetime Income More Flexible Than Annuitization 

Disadvantages of a Fixed Index Annuity

#1. Pre 591/2 10% IRS penalty.

#2. Highly Customizable / Complicated

#3. The surrender Charge applies to early withdrawals during the surrender charge period.

#4. Won’t generate returns as high as an equity investment.

In our Fixed Index Annuity Pros and Cons we compare and contrast the advantages and disadvantages of an indexed annuity in greater detail.

Recent Fixed Index Annuity News

Frequently Asked Questions

Do Fixed Index Annuities have fees?

Fixed Index Annuities do not have any fees in general; however, there are optional income riderslong-term care riders, and death benefit riders that can be added to an index annuity for a fee. 

Are fixed index annuities a good investment?

It is important to note that a fixed index annuity is an insurance contract issued by an insurance company and is not a security. As such, they will not generate equity-like returns. They are a good retirement savings vehicle that provides a safe and steady way to grow your retirement savings. 

What the disadvantages of a fixed index annuity?

  • Gains are limited by a crediting method or “limiting factor”
  • Fixed index annuity contracts can be complex and difficult to compare
  • Indexed annuity contracts vary greatly from insurance company to company
  • They are highly customizable and typically require an experts assistance
  • Surrender penalties for withdrawals above the annual free withdrawal provision
  • Potential 10% IRS tax penalty for withdrawals prior to age 59 ½
  • Interest crediting factors (cap, participation rate, and spreads) can change on the contract anniversary date.

Can you lose money in a fixed index annuity?

You can not lose money in a fixed index annuity due to a potential stock market crash. A fixed index annuity can only decrease in value due to withdrawals or fees for optional riders.

In addition, withdrawals prior to age 59 1/2 may be subject to a 10% IRS tax penalty. 

What is an Uncapped fixed index annuity?

An Uncapped Fixed Index Annuity refers to an indexed annuity with a crediting method that does not cap the interest your account can be credited in any given year. Instead of a cap, uncapped options use a spread or participation rate crediting method.

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