Tax Deferred Annuity: Leading the Path to Success

By Rafael Onak, InsuranceAgents.com Staff Writer

There’s no use in hiding it anymore—the biggest advantage of a tax deferred annuity is, as its name implies, the ability to defer tax. To compare rates on annuities use our quick online form. If you’re interested in building your wealth, the easiest way to do so is having your investment grow tax-free throughout the annuities process. It begins with the holder making periodic payments that accumulate over time. Once the investment reaches a specific date, the holder receives the accumulated proceeds. Throughout the entire process, however, the accumulation occurs free of taxation. What’s not to like?  Annuities can be difficult to understand on your own.  If you have any questions, feel free to search our directory for a local annuities professional near you.

A Tax Deferred Annuity for Everybody

People looking to invest in a tax deferred annuity have three to choose from: fixed, variable and indexed:

1. Fixed annuity. One of the oldest and most popular type of tax deferred annuity, the fixed annuity is known for guaranteeing an investor’s rate of return. While the proceeds are not taxed during accumulation, they are once distribution begins as ordinary income rather than as capital gains.
2. Variable annuity. Unlike a fixed annuity, a variable tax deferred annuity’s rate of return is not fixed and is subject to change throughout the accumulation period. A variable annuity allows a holder to seek a higher rate of return by willingly accepting the risk of greater fluctuation.
3. Indexed annuity. An indexed tax deferred annuity is a combination of a fixed and variable annuity. An indexed annuity’s interest rate varies according to the market performance of the index.

NOTE: Each tax deferred annuity contains some tax consequences. Contact your life insurance agent or financial advisor to find out if these consequences would affect you should you invest in one.

Don’t Sleep on a Tax Deferred Annuity

On top of tax deferral, tax deferred annuities allow annuitants to receive a guaranteed income for life. You won’t benefit from this feature with alternatives such as stocks, bonds, mutual funds or CDs. A tax deferred annuity, whether it’s fixed, variable or indexed, can prove to be very beneficial to an investor if used under the right circumstances, so contact your life insurance agent today or find a local agent using our online quote form to compare up to 5 offers.

Published: Tuesday 27th October 2009