- Annuities
Tax Deferral
Tax-Deferred Annuity
A tax-deferred annuity can provide powerful tax benefits when used correctly. An annuity grows, tax-free, until your retirement begins and you start taking payments from it. Taxes are not due until this phase begins. Therefore, deferring taxes can increase your retirement income.
Retirement Income and Taxes
Here’s an example. Your Social Security benefits will be reduced if your income exceeds a certain level. Interest earned from CDs, bonds, and other contributions must be reported to the IRS. However, the earnings on an annuity are a different story.
Taxes on Retirement Withdrawals
After-tax dollars may provide some tax benefits with a fixed indexed annuity, or FIA. An FIA contract entails two main phases: Accumulation and distribution. Tax advantages are available to an FIA during the accumulation phase, or growth phase. Taxes are only due once the distribution phase begins. Reducing your liability in retirement may allow you to earn more.
Tax-Deferred Annuities Vs Traditional Retirement Accounts
An IRA or 401(k) plan may also provide tax-deferred growth. However, an annuity comes with a benefit that these plans lack. A tax-deferred annuity doesn’t have government-imposed contribution limits. Within certain other guidelines, you can put in as much money as you need. For retirees who have already maxed out their other retirement accounts, an FIA may be a great option. Additionally, it’s possible to rollover an IRA or 401(k), or multiple, into an annuity.
Taxes in this situation will vary. Make sure you consult a qualified dtax advisor on the matter.
A Tax-Deferred Annuity For Early Retirement
Can you retire early with an FIA? Possibly. It depends upon several conditions.
- You are at least 59 1/2
- You have received a lump sum from a 401(k) plan
- You must have received it as part of a retirement package
You may qualify if you meet all three of these requirements. Get in touch with us to help you determine if a tax-deferred annuity is the right option for you!