what are the pitfalls of indexed annuities 
with an indexed annuity you re not getting the full upside when the market does well your gains are limited by a participation rate and a rate cap the guaranteed rate of return may not keep pace with inflation so you may be essentially losing money and don t forget about the surrender fee if you need to pull your funds from the account during the surrender period which can be up to ten years you ll need to pay a hefty fee which can be 10 or even double that annuities like other retirement savings vehicles follow internal revenue service irs rules about early withdrawals if you withdraw funds before you turn age 59 you ll need to pay a 10 fee once you deposit this money it s up to the insurance company to distribute income during the payout phase of the contract at the extreme end of this is what happens if the insurance company becomes insolvent every state has a safety net a guaranty fund to protect these funds but not all funds may be covered for example the policy may only protect up to 100 000 and the process to recover them may be complex and protracted 2 that s why it s crucial to choose an insurance company with a high financial health rating the bottom linean indexed annuity or fixed indexed annuity is a tax deferred insurance product that tracks a market index like the s p 500 designed to provide income in retirement the indexed annuity does not participate in the market like a variable annuity instead it follows it there is no downside risk if the index declines only upside potential however these gains may be limited via a participation rate and a rate cap there s also a potential surrender fee to be aware of if you need to withdraw funds before the years long surrender period is over you ll have to pay a high fee it shares many pros with its more conservative cousin the fixed annuity one benefit is it helps your estate avoid probate and it may come with benefits for the beneficiaries you select the principal is protected and the account s exposure to market lows is limited via a guaranteed return which may be between 0 and 3 make sure to weigh these pros and cons before signing on the dotted line 