Tax deferred annuities are mortality insurance products. Tax deferred annuities permit your contributions and earnings to accumulated tax deferred. The earnings or crediting method have three basic options: fixed interest rate crediting, indice crediting and separate sub accounts - using equities and bond investments. Tax deferred annuities are generally purchased to generate income in the future, even lifetime income you can’t outlive. During distributions the gain in the policy is taxed as ordinary income.
A Deferred Annuity is a type of Retirement Savings method. At a very basic level, it credits your money a certain rate each year. This rate is often a set interest rate. But it can be based on Index-Linked gains, or equity gains/losses.
Your money grows until you decide to do 1 of 2 things:
1. You can move it to a different financial instrument.
2. You can choose to annuitize the funds, creating a guaranteed income stream.
Of course, you can choose to take periodic withdrawals from your deferred annuity as well.
But be aware of any surrender charges or % based limits on your withdrawals. Most Deferred Annuities impose an early surrender charge on any withdrawal over 10%. But some limit it to the earned interest, 5%, and some even 20%.
Business Development Officer, T.D. McNeil Insurance Services, Fresno, California
There are two types of annuities. An immediate annuity is one where the deposit is converted to a lifetime income (or some variation) immediately. A deferred annuity provides that annuity benefits may commence at a later date. The deferred annuity has two phases; the accumulation phase and the distribution phase. Further questions about deferred annuities should reference which phase of the annuity is of concern.
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Your money grows until you decide to do 1 of 2 things:
1. You can move it to a different financial instrument.
2. You can choose to annuitize the funds, creating a guaranteed income stream.
Of course, you can choose to take periodic withdrawals from your deferred annuity as well.
But be aware of any surrender charges or % based limits on your withdrawals. Most Deferred Annuities impose an early surrender charge on any withdrawal over 10%. But some limit it to the earned interest, 5%, and some even 20%.