What is a Deferred Annuity?
A tax-deferred annuity is a retirement savings plan designed for accumulating money (cash value) with the option of converting retirement savings into a source of guaranteed income for life. Deferred annuities will grow on a tax-deferred basis, just like a 401k or IRA.
These annuities are the opposite of immediate annuities.
How Do Deferred Annuities Work?
Deferred Annuities, also known as delayed annuities, work in 2 different phases:
The accumulation period is the period the deferred annuity accumulates wealth before receiving an income.
The distribution period refers to when a policy owner either annuitize their annuity or turns on the optional lifetime income rider to start receiving annuity payments or lifetime withdrawals from the insurance company.
Tax-Deferred Annuity Types
- Fixed Annuity
- Fixed Index Annuity
- Variable Annuity
- Long-Term Care Annuity
- Deferred Income Annuity
- Qualified Longevity Annuity Contract (QLAC)
- Registered-Index Linked Annuity
- Two-Tiered Annuity
Single-Premium Deferred Annuity
Single-premium deferred annuities (SPDA) are the type of annuities that can be purchased with one monetary deposit.
You can find single premium deferred annuities here.
Flexible-Premium Deferred Annuity
Flexible-premium deferred annuities are tax-deferred annuity plans that allow an owner to contribute additional funds to an existing policy during the contract’s accumulation period. If funds are added to a flexible-premium annuity, the insurance company typically invests the added funds in a fixed account until the following anniversary or annual reset period.
You can find flexible premium deferred annuities here.
Most deferred annuities allow for penalty-free withdrawals, systematic withdrawals, and waivers to assist in health-related issues like terminal illness, nursing homes, or home health care.
Annuitizing a deferred annuity with giving up all control over the asset with no liquidity.
The remaining accumulation value in deferred annuities will transfer to the beneficiaries in a lump sum. A spouse may continue the annuity through spousal continuation. Depending on how payments were structured, the beneficiary will receive either remaining annuity payments or no death benefit if the annuity has been annuitized.
Deferred annuities offer many types of optional riders, waivers, and benefits, including:
- Income Rider
- Enhanced Death Benefit
- Long-Term Care Rider
- Annuity Bailout Provision
- Return of Premium
- Premium Bonus
Single Premium Deferred Annuity Pros And Cons
- The taxes are deferred until income is withdrawn from the annuity in the future. Interest is earned on the money that would have gone to the IRS each year.
- Deferred annuties can provide a retirement income for an annuitant’s entire lifetime including keeping up with inflation.
- Annuity owners can know today, what their future guaranteed income in retirement will be.
- Variable deferred annuities offer all the upside potential.
- Deferred fixed and fixed indexed annuities offer principal protection while earning interest at the same time.
- Deferred fixed annuities offer higher interest rates than Certificates of Deposit (CDs).
- Fixed index annuities allow owners to safely grow their retirement savings based on the performance of a stock market index,such as the S&P 500, while offering protection from a stock market crash.
- Deferred annuities can help pay for long-term care expenses.
- There is no medical underwriting with a deferred annuity allowing applicants that can’t get life insurance coverage, an alternative to leave a death benefit for their beneficiaries.
- Deferred annuities are long term contracts, ranging from 2 to 20 years in length.
- Some annuities charge hefty fees.
- Liquidity is limited in annuities.
- Annuity owners can’t collect income from their deferred annuity until age 59 ½ without being subject to a 10% tax penalty.
- Annuity owners have to fill out another application which could be approved or disapproved.
Deferred Annuity At A Glance
|Access To Principal||Yes||Yes||Yes||No||No|
|Control Over Money||Yes||Yes||Yes||No||No|
|Long-Term Care Help||Yes||Yes||Yes||No||No|
Deferred Annuity Quotes and Questions
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