Annuities:
Tax Deferral
Deferred Annuity Taxation
Annuities provide tax-deferred growth with no contribution limits, unlike IRAs and 401(k)s. Unless you make a withdrawal, you do not need to declare any income or file any tax forms. This way, earnings are not taxed immediately. You pay taxes only when you withdraw funds. Your interest effectively compounds your money without being taxed. Only then, when you withdraw your money, you pay taxes.
Deferred annuity taxation can also assist you in maximizing other retirement income sources. If you earn more than a specific amount per year, your Social Security benefits may be reduced. If you earn interest on CDs, bonds, or other investments, you must report it to the IRS. In some circumstances, this additional income reduces your Social Security payments. However, if you purchase an annuity, the earnings do not count against you. Deferring taxes as your money grows might provide significant benefits.
Annuities Compared to Traditional Retirement Accounts
Traditional IRAs and 401(k)s also allow for tax deferrals. However, deferred annuity taxation may provide some additional benefits. Fixed index annuities (FIAs), for example, do not have contribution limits set by the government. You are welcome to contribute as much as you want, within certain other restrictions. So, if you’ve already maxed out your 401(k) or other qualifying retirement plans, a fixed index annuity may be a beneficial choice.
Perhaps you want no constraints on your retirement income. Fixed index annuities may also be suitable for your needs. In many circumstances, you may even be able to transfer your IRA or 401(k) funds into an FIA instead. Tax implications can vary, so get advice from a reputable source. We’re here to assist you find the best of our ability.
Early Retirement With Deferred Annuity Taxation?
Here are a few key requirements you need to meet in order to qualify for early retirement using an annuity. You must be able to check “yes” to all three:
- I am under the age of 59½
- I have received a lump sum payment from my employer-issued 401(k) plan
- This lump sum payment was part of a severance package or early retirement package
If all three of the above statements apply to you, you may be in luck. You may be able to “roll over” the money in your 401(k) into an annuity policy instead, deferring taxation. There are also ways to access this money without penalty.
