How Do Deferred Income Annuities Work?

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    David G. Pipes, CLU®, RICP®
    Business Development Officer, T.D. McNeil Insurance Services, Fresno, California
    The basic annuity is an immediate annuity. That means within one year of receiving the deposit the insurance company will start paying a lifetime of monthly benefits for the balance of the annuitant’s life. A deferred annuity means that the income stream will start more than one year after the initial deposit. Most deferred annuities allow owners to make further deposits until they are ready to receive the monthly income payments or surrender the contract for cash. The interest earned on the money deposited does not incur immediate income taxation. It will normally be taxed as ordinary income when benefits start being paid.
    Answered on September 11, 2014
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