What is a Deferred Annuity?
A deferred annuity is a contract issued by an insurance company that allows you to accumulate money on a tax-deferred basis for long-term goals like retirement. Unlike a qualified retirement plan or an IRA, there are virtually no limits on contributions to a deferred annuity. However, there may be minimum purchase requirements.
A deferred annuity is a type of personal account intended for long-term savings goals, like retirement. Unlike an immediate annuity, income payments are optional and are deferred until a future time. Deferred annuities have two phases: the savings and investment phase, where your earnings accumulate tax-deferred, and the income phase, where you can receive regular payments for your lifetime or another period. Deferred annuities typically allow withdrawals during the savings and investment (or accumulation) phase, and entering into the income phase is typically optional. Early withdrawal charges and ordinary income taxes apply at withdrawal, and tax penalties for withdrawals before age 59 1/2 may apply. There are two types of deferred annuity: fixed and variable.
A deferred annuity is a type of annuity contract that allows for periodic contributions to the plan, but does not allow any withdrawals from the plan until either an appointed time is reached or a specific event takes place. For example, a deferred annuity plan may be put is place early in life and receive payments on a regular basis until the point of retirement. At that point, contributions cease and the holder of the annuity account begins to receive regular income payments that are funded from the balance in the plan. There are two main advantages to a deferred annuity arrangement. First, contributions to a deferred annuity plan are not subject to taxes. The payment of any applicable taxes is postponed or deferred until the annuities are actually received as an income payment at a later date. Depending on the amount of contributions made to the deferred annuity during the calendar year, the tax advantage may be significant. The second major benefit to a deferred annuity plan is tha
An annuity you purchase either with a single sum or with periodic payments to help save for retirement. Earnings in a deferred annuity are not treated as taxable income until they are withdrawn. Withdrawals may be subject to regular income tax, and if made prior to age 59½, may be subject to a 10% IRS penalty. In addition, company imposed surrender charges may apply. The policy owner can choose the point at which he or she can convert the accumulated principal and any earnings in the contract to a stream of income.
A deferred annuity can be funded with either a lump sum or through a series of smaller contributions. This allows you the flexibility to contribute according to your unique financial situation. It is an investment that can assist you in achieving your retirement goals. You set aside funds today and earnings accumulate tax-deferred on your investment. Once you have accumulated the money you will need for retirement, you have many options about when and how you receive your income. A deferred annuity can be Variable or Fixed.
