Earnings are taxed as ordinary income when withdrawn. There may be a 10% federal tax penalty on withdrawals before age 59½. Naturally, your death benefit and the cash value of the annuity contract will be reduced if you take any early withdrawals.
Keep in mind that investing involves market risk and your investment return, principal value and periodic payments will fluctuate over time. You could end up with more or less than the amount you invested.
An annuity is a long-term, tax-deferred investment designed for retirement. It will fluctuate in value. It allows you to create a fixed or variable stream of income through a process called annuitization. It provides a variable rate of return based on the performance of the underlying investments. An annuity isn't intended to replace emergency funds or to fund short-term savings goal.
You should also know that an annuity contains guarantees and protections that are subject to the issuing insurance company's ability to pay for them. But these guarantees don't apply to any variable accounts that are subject to investment risk, including possible loss of your principal.
An annuity is a contract between you and an insurance company, and it's sold by prospectus. You should read these documents. They describe risk factors, fees and charges that may apply to you. Variable annuities have fees and charges that include mortality and expense, administrative fees, contract fees and the expense of the underlying investment options.
Neither Nationwide nor our representatives give legal or tax advice. Please consult your attorney or tax advisor for answers to specific questions.