Annuities
Tax-Deferral
Tax-Deferred Annuity
When your annuity gains interest, you aren’t taxed right away. Instead, you don’t have to pay taxes until after you withdraw money from your annuity.
Even then, you only pay regular income tax on the money. This is one of the major benefits of using an annuity to save for retirement, that many people may appreciate. For example, those with Social Security Benefits.
Any income you receive, whether from working, from interest on investments, et cetera, will count towards your total household income. For some people, additional interest would reduce their Social Security benefit amount. With an annuity, however, the income is only counted when you withdraw the money. Because of this, the potential indexed interest in your policy does not impact your Social Security benefits. Of course, always consult with a qualified tax advisor when discussing matters like this.
Buying an Annuity With After-Tax Dollars
There are some potential benefits to buying an annuity with after-tax money. An annuity, specifically a fixed indexed annuity (FIA), has two distinct stages: the accumulation stage, and the distribution stage. During the first stage, you may have a tax advantage: it may be able to grow with no taxes* on premium payments. However, again, you will still pay income tax on the money when you withdraw it.
Retire Early With an FIA?
A fixed indexed annuity may allow you to retire early, depending on your situation. If you meet all of the following conditions, then an FIA may be useful to you for this purpose:
- You are under age 59½
- You have received a large payment from your 401(K) profit-sharing plan, in the form of one lump-sum
- This lump-sum payment was due to a severance or early retirement package
If this situation applies to you, we would recommend that you look into an FIA as a retirement option. An FIA comes with a number of benefits, including deferred taxes on retirement income. Contact our office to learn more about this product, and how it may be able to benefit you. For some retirees, a tax-deferred annuity is the perfect option for them.
