Tax Deferred Annuity
Discover long term growth advantages with a tax deferred annuity.
The tax deferred annuity is an extremely popular savings and investment plan for individuals who want to save on a tax deferred basis for many years. With a tax deferred annuity, you invest your money to earn interest on the total amount being built up, with all taxes deferred until you start taking the money out. The process of earning interest over a long period of time without any tax deductions compounds your wealth greatly compared to traditional CD and savings plans.
Investors that create a tax deferred annuity have several options in the way they fund the investment, depending on their personal objectives and circumstances. A tax deferred annuity can be funded with a single lump sum (known as "single premium"), while other options for installments are also available (known as "flexible").
The tax deferred annuity is provided as a retirement vehicle by major insurance companies, who utilize financial planners, employers, and retirement specialists to introduce the benefits direct to individuals. The tax deferred annuity is safe, as an approved life insurance company is required to hold reserves that at all times equal the withdrawal value of your annuity policy. In addition, state law requires certain levels of surplus capital also be available to increase your protection. The legal reserve for a tax deferred annuity refers to the strict legal requirements that must be maintained by insurance companies to protect and safeguard your assets at all times.
For many working individuals, a tax deferred annuity makes up the cornerstone of a safety-first retirement plan, being the natural progression once 401k, SEP or IRA contributions are maximized. For individuals in retirement, the tax deferred annuity can be utilized to continue to defer taxes in preparation for the time when that money will needed to supplement or provide a dedicated stream of lifetime retirement income.
Three Types of Tax Deferred Annuity Products
There are three main types of tax deferred annuity products, including the fixed annuity, equity indexed annuity and variable annuity. For the fixed and equity indexed annuity, your principal and a minimum rate of interest are guaranteed to ensure that you never experience a loss or reduction of your savings. They are designed to 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 plan.
The variable annuity however is a form of securities, directly linked to the stock market in terms of growth potential and investment risk. While the variable is a form of tax deferred annuity, variables differ from the guaranteed nature of fixed and equity indexed annuities in that their value depends on the market performance of the investments held by the variable annuity you purchase. As a result, you can experience higher gains over other annuities, but your retirement savings could also be at risk of unforeseen market changes.
Ask for Objective Planning Assistance
The Annuities Institute realizes that all investors have different needs, and that no two investment strategies are identical in helping you to realize your financial objectives. Contact us us today to arrange a friendly telephone interview with a qualified planner near you that can help evaluate your options to get the most from your tax deferred annuity and retirement plan.
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