An annuity is a contract between an individual and an issuer whereby the individual agree to give the issuer principal and in return the issuer guarantees fixed or variable payments over time. While annuities are not insurance policies, they are issued by insurance companies. An annuity is similar to a retirement plan in that you can fund it in a lump sum or a little at a time, and all capital in an annuity grows and compounds tax-deferred until you begin making withdrawals. Unlike retirement plans, however, there is no limit as to how much you can invest in annuities.
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