Can an Annuity Help My Retirement Money Grow Tax Deferred?
A Unique Opportunity
An annuity is a unique retirement planning alternative that can be tailored to suit the needs and objectives of almost anyone. Whether you prefer current income or a long-term accumulation alternative, check out annuities. They may be just what you need.
What Is an Annuity?
An annuity is a contract between you and an insurance company. In exchange for a current premium, your insurer agrees to pay you a future stream of income. Annuities are very flexible financial vehicles. You can pay your premium all at once or you can pay it over time; it's up to you. In addition, you can specify when you would like to begin receiving the income from your annuity. You can start immediately or you can let your annuity accumulate.
One of the most attractive features of annuities is that they are allowed to grow tax deferred. Because you do not have to pay taxes on the growth of your annuity until withdrawn, annuities have become an attractive accumulation alternative.
Immediate Annuities
With an immediate annuity, payments usually begin a month after you have paid a lump sum premium. This makes them a popular source of supplementary income for retirees.
We wanted to establish a bit of extra income. There was a good recommendation about ImmediateAnnuities.com on CNN. We also liked that we could see excellent reviews about them on Google. They were very thorough from our first inquiry to when we decided to buy our annuity from Mass Mutual. They always answered our questions promptly and followed up with the insurance company, too. We have been receiving our monthly payments since last November and couldn’t be happier. What more can we say?
Immediate annuities provide some tax deferral. Only the interest portion of each payment is considered taxable income. The rest of each payment is considered a return of your principal. Taxes on the earnings of the annuity are spread over the payout period, which means you pay fewer taxes in the early years.
Deferred Annuities
With a deferred annuity, you allow your premiums to accumulate before you begin the payout period. Deferred annuities give you the option of paying fixed or flexible premiums, and you can pay them all at once or over time. The earnings of the annuity are not taxed until they are withdrawn. This may allow you to accumulate more over the long term than taxable investments would. And you decide when to start receiving income from your annuity.
Annuities are insurance-based financial vehicles designed to provide income in retirement. There may be a 10 percent penalty on amounts withdrawn prior to age 591/2, in addition to regular income taxes. Surrender charges may also apply in the early years of the policy.
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