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I am considering early retirement at age 55. I understand I can use my
401k to buy an annuity and then draw an annual or monthly amount.
I would appreciated any input on annuities, how they work and the tax impact. Thanks
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If you read the FAQ below and search this board for annuity, you will find a lot of information. I just posted a question on this board, and the Insurance board for clarification, and got good answers.

IMHO, the most important fact is that if you buy a fixed annuity, your heirs receive nothing after you die. As for a variable annuity, you gain absolutely nothing except a lower return, since your money is already in a tax-deferred account.

If you are looking for a way to provide a steady, inflation-adjusted, income stream, please check out message #13041.

Zev
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Greetings, Setsail, and welcome. You wrote:

<<I am considering early retirement at age 55. I understand I can use my 401k to buy an annuity and then draw an annual or monthly amount.
I would appreciated any input on annuities, how they work and the tax impact. Thanks >>


For the Foolish take on annuities, see post number 11725 on this board at http://boards.fool.com/registered/Message.asp?id=1040013002967001&sort=postdate. That will give you an idea of what you may expect from an annuity product. As a young retiree, it may not be the right choice for you. For most Fools, it isn't a highly regarded product either as an investment or as a continuing source of income. The reasons are outlined in the post I cited previously.

Regards..Pixy
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Zev,

Sorry, but you're mistaken about what an annuitant's heirs will receive upon his/her death!

The fixed annuity refers to the investment product (a CD-like return, guaranteed by the insurance company, vs. a variable annuity which offers multiple investment subaccounts). You may be thinking of an "Immediate Annuity" vs. a "Deferred Annuity". The immediate annuity appears to be a poor choice because you might expect that if the annuitant dies soon after the purchase the balance of the funds is lost! Well, that should not happen because mant/most programs provide for beneficiaries to receive the balance of scheduled payments for a minimum amount of time...

While I'm not a big fan of immediate annuities, they're not as bad as you may think! And variable annuities can provide some very competitive returns! They don't all perform poorly and/or get chewed up by fees...

As for the original question - the owner of an IRA can make withdrawals prior to age 59 1/2 without penalty if he/she take substantially equal payments for life expectancy. I suggest you see the IRS web page and/or consult a tax advisor for specific steps to follow!

Regards, PP
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