A Tax Deferred Annuity is one of few retirement investments that offer tax deferred compounding of investment gains. CD’s and Treasury Bonds are do not- they are taxed every year.
Tax Deferred Annuities offer these advantages, and are popular savings and investment plans for individuals who want to save on a taxes for many years. With a tax deferred annuity, your investment grows and compounds. Unlike a CD, your earnings are not taxed each year, leaving you with more capital, and greater earnings, year after year. Investors fund tax deferred annuities with a single lump sum (known as “single premium”), or installments (known as “flexible premium”).
The tax deferred annuity is safe, as an approved life insurance company is required to hold reserves at all times equal the withdrawal value of the annuity contract. In addition, state law requires certain levels of surplus capital also be available for increased protection. For many, a tax deferred annuity makes up the cornerstone of a safety-first retirement plan. For individuals in retirement, the tax deferred annuity is useful to defer taxes prior to needing the dedicated stream of lifetime retirement income.
The Three Main Tax Deferred Annuities:
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Fixed Annuity |
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Fixed Index Annuity |
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Variable Annuity |
For the fixed and fixed indexed annuity, your principal and a minimum rate of interest are guaranteed by the full faith and credit of the company issuing the annuity contract. These annuities provide a higher rate of return over traditional CD and savings plan products, and come with many options you can customize depending on your retirement objectives and financial plans. The variable annuity is a form of security, linked to the stock market in terms of growth potential and investment risk. While the variable annuity is a form of tax deferred annuity, variables are different from guaranteed fixed and fixed indexed annuities in that their value depends on the market performance of the investments held by the variable annuity. As a result, you can experience higher gains over other annuities, but your retirement savings could also be at risk of loss from unforeseen market change.
