Deferred Annuities: The Best Tax Advantages
Deferred annuities play a vital role in the portfolios of senior citizens. It has been observed that the senior citizens hold around a billion dollars as investment with these annuities. However, be aware of the unique characteristics of a deferred annuity that are not found in other types of annuities. An annuity is basically an agreement between the investor and the insurance company. A tax-deferred annuity is one that makes you receive distinct tax advantages. Deferred annuities are more beneficial in the sense that they provide a triple compound interest. First of all, you get interest on your principal amount, then you get interest on interest and additionally, you get interest on the taxes that you would have been paying in case you had invested in a normal annuity. It comprises two stages: firstly the investing and savings phase and secondly the retirement income stage.
As the term itself suggests, in this annuity you get the benefit of making all your earnings as tax-deferred. This means that you do not have to pay any kind of taxes on your earnings until and unless you want to withdraw your money from the annuity. The people who invest in deferred annuities generally plan to withdraw their money at the time of their retirement. The existing tax laws state that until you actually begin to receive the income, any interest or gain is not taxable. Thus, the tax payable on the gain is deferred. This makes you take the advantage of the fact that while your money is being compounded, you gain interest in three ways. This results in an increase in the earnings. This is the reason why a deferred annuity is always preferred to any other fully taxable earnings. It is an annuity that has been created in a way that helps the investor to increase the growth of the investor's assets. It also provides a steady income after your retirement. The two varieties of deferred annuities include: fixed deferred annuity and variable deferred annuity. The fixed one offers a guaranteed interest rate but only for a fixed time period. The variable one offers flexibility and choice in investment. The insurance companies set the interest rate annually. Thus, they make the interest rate higher. Hence, a deferred annuity not only defers the taxes but does provide a higher rate of interest too. The market trends reveal that these annuities are not much risky as billions of dollars have been invested by the insurance companies as a kind of back up. So in spite of the fact that these are not insured by FDIC, you can consider them as a good option for your retirement plans! |
