Annuities
Overview & Policy Types
Two Main Annuity Strategies
Deferred Annuity:
A deferred annuity begins in the accumulation phase and later converts to the payout (annuitization) phase. You may make one or more payments, which grows tax-deferred as long as they remain in the annuity. Earnings are taxed as ordinary income when they are withdrawn from the annuity.
Immediate Annuity:
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With an immediate annuity, regular payments are generated within a short period of time. Payments can be structured with great flexibility. Typically, an immediate annuity becomes a binding contract once it is funded and cannot be broken. The principal investment is surrendered in return for the promise of a guaranteed income stream paid by the insurance company.
Annuity Advantages
Annuities are tax-deferred vehicles and unlike other retirement accounts such as 401(k)s and IRAs, there is no annual contribution limit.
An Annuity grows tax-deferred.
When you eventually make withdrawals, the amount you contributed to the annuity is not taxed, but your earnings are taxed ordinary income.
There is a 10% federal tax penalty if you withdraw money before age 59½ for reasons other than death or disability.
Quick Video About Annuities
Get a quick overview of the four types of annuities from Danielle Corey of Vanguard Annuity and Insurance Services.
