Tax-Deferred Annuities (Retirement Savings)
If you’re looking to increase your retirement savings once you’ve already hit
the maximum contributions allowed by your 401(k) or IRA, deferred annuities
might be a good option for you. Just like other tax-deferred investments,
the earnings from deferred annuities compound over time. This will provide
you with growth opportunities that taxable accounts cannot offer.
Plus, deferred annuities have no IRS contribution limits, which means that
you’ll be able to invest any amount you prefer for your retirement. You also
have the option of using your own savings to create a guaranteed stream of
income.
It’s important to note that withdrawals of taxable amounts for an annuity
are all subject to income tax. If withdrawn before the age of 59½, there may
also be a 10% IRS penalty. Annuities come with charges on an annual basis
that aren’t found in mutual funds, and this will have an effect on your
return.
While deferred variable annuities may present potential investment growth,
there is some market risk. Variable annuities are, generally speaking, a
better option for investors who are better situated to handle fluctuations
in the market.
Deferred fixed annuities offer investors a guaranteed rate of return for a
number of years and may be more suitable for conservative investors. And
while they’re similar to certificates of deposit (CDs), they differ in
various ways, including:
- Annuities are not FDIC insured
- Withdrawals from annuities (before 59½ years of age) are potentially
subject to a 10% IRS penalty
- With a deferred fixed annuity you may have more access to assets
- Your annuity earnings will compound on a tax-deferred basis
Income Annuities (Income In Retirement)
If you’re approaching retirement, the fact that income annuities offer
guaranteed income for life (or a set period of time) may make them a more
appropriate option for you. Plus, you’ll still be able to be more aggressive
with your portfolio’s other investments. It’s important to note, however,
that you may have limited or no access to the assets used to invest in
income annuities.
Immediate fixed income annuities provide predictable (guaranteed) payment
for life or a fixed amount of time. Your payment can’t be affected by
volatility within the market, thus shielding you from risk.
Deferred income annuities are fixed and have a deferral period before your
payments begin. Due to the deferral period, you may receive a higher payment
than you would from an immediate fixed income annuity. Deferred income
annuities also offer a cost of living increase for an additional cost.
