Annuities
Tax Deferral
What is a Tax-Deferred Annuity?
The money in an annuity increases in value without being taxed. You only pay taxes on the funds when you begin withdrawing them. This is one advantage that annuities have over typical financial retirement plans, among others.
Using a Tax-Deferred Annuity to Make the Most of Your Retirement
If you have money in a CD, bonds, or other investments, you will need to report it as income. Extra income from retirement accounts could reduce your Social Security benefits. However, if you purchase an annuity, the earnings are not reported as income, and Social Security benefits are unaffected. This could be an effective approach to gaining more control over your retirement. And, did we mention that annuities do not have required minimum distributions or contribution limits?
Deferred Annuities Vs IRAs and 401(k)s
An IRA or 401(k) retirement plan account may also offer tax-deferred growth. However, a tax-deferred annuity offers extra benefits. There are no government-imposed contribution limits on an annuity. If you’ve already reached the maximum amount you can contribute to your retirement accounts and want to save even more, an annuity may be an option to consider. Annuities are also subject to different tax restrictions than other options out there. However, remember to consult a certified tax advisor about this subject.
Retire Early with a Tax-Deferred Annuity?
If you want to retire early, a tax-deferred annuity could be a good option for you. However, some restrictions do apply. If you meet the following criteria, you may be eligible to use a tax-deferred annuity for early retirement:
- You are under the age of 59½
- You have received a lump-sum payment from your previous employer's 401(k) plan
- This lump-sum payment was part of an early retirement or severance package
