Benefits of Tax-Deferred Savings With an Annuity

Annuities are unique, retirement savings products that can provide you with tax deferral and the potential for lifetime income. Here’s how:

As you get closer to retirement, you need to keep a sharp lookout for ways to protect your savings from taxes and inflation. Tax-deferred savings with an annuity offers a range of lifetime benefits depending on the annuity you choose. Among them are:

  • Tax-deferred investment growth. Any gain or interest in an annuity can grow without taxation until you withdraw it — typically after retirement, when most people have a lower tax rate.
  • No IRS contribution limits. Unlike Individual Retirement Accounts (IRAs), 401(k) plans, and other tax-qualified plans, there’s no limit from the IRS on the amount of money you can put into an annuity.
  • No mandatory withdrawals. Unlike some qualified retirement accounts, you are not required to begin receiving payments at age 70½. Keep in mind, however, that annuities owned within a Traditional IRA are subject to the required minimum distribution rules. (Contract terms may require you to start taking withdrawals at a certain age, such as 95.)
  • Simpler estate planning. In some situations, you can bypass probate so your annuity proceeds go directly to your beneficiary upon your death.

The benefits of tax-deferred savings with an annuity are most applicable if:

  • You are in your 50s or 60s and preparing for retirement.
  • You are making the maximum allowable contributions to your other tax-advantaged retirement savings options, such as your 401(k) or IRA.
  • You want to save more for your retirement with some tax advantages.
  • You want to diversify and strengthen your retirement portfolio.

You should consult your tax advisor about your particular situation. To learn more, see our tax-deferred savings questions page. 

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Tax-qualified plans

Tax-qualified plans are retirement savings plans where you typically don’t pay taxes until money is taken out, and your earnings from the plan assets are tax-deferred.

An IRA and a 401(k) plan are examples of tax-qualified plans.