Tax Deferral
Taxes on Retirement Income

Tax-Deferred Annuity and Its Benefits

Taxed-deferred annuities (also known as deferred annuities) are insurance contracts that generate retirement income.

The main advantage of annuities is that you can save more money and defer paying taxes. Thus, you can defer paying income tax on contributions to an annuity until after retirement. Taxes are not paid until you withdraw your money. Unlike taxable products, this method lets your money grow at an accelerated rate.

Retirees can also maximize the benefits of other retirement accounts utilizing a tax-deferred annuity. For instance, you may see a decrease in your social security benefits if your income exceeds a certain amount. As a result, if you earn interest from CDs, bonds, or other investments, you must report it to the IRS. This can lead to a reduction in social security benefits in some instances. In contrast, if you receive an annuity, your earnings won’t be counted against you. Taxes are due once you take money out. But deferring taxes can lead to significant benefits.

Retirement Income Withdrawal Taxes

Tax benefits may be available if you purchase a fixed index annuity with after-tax dollars. An FIA consists of two main elements. First, the accumulation phase. A tax advantage is available to your FIA during the accumulation stage. The accumulation is tax-deferred so your payments are tax-deferred. Again, taxes are only due when the money is withdrawn. Moreover, you will only be subject to ordinary income taxes when you withdraw the money. A lower liability could mean more retirement income for you.

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Deferred Annuities vs. IRAs and 401(k)s

Traditional IRAs and 401(k) plans also allow tax deferrals. Unlike 401(k)s and IRAs, a fixed indexed annuity (FIA) does not have an annual contribution limit. If you have exhausted these traditional plans, an FIA may be an option for you. This allows you to save more for retirement. This is helpful for those close to retirement age who want to catch up on their savings.

Your money compounds year after year without being taxed. Investing tax-deferred can also offer you the advantage of keeping every dollar in your pocket.

You should also take into account a “rollover” option. You can “rollover” your 401(k) or IRA into a fixed index annuity in many cases. At TW Retirement Strategies, whatever your financial needs, we are here to help.

Tax-Deferred Annuities:

Early Retirement

Here are some key eligibility requirements. All three conditions must be met.
  1. Are you under 59½ years old?
  2. Do you have a 401(k) profit-sharing plan that provides you with lump-sum payments?
  3. Did the lump sum payment come as part of a severance package or an early retirement package?

Do all three of these conditions apply to you? Call our office to discover if an FIA could help you save on taxes. You might benefit from learning more about an FIA if you answer “yes” to all three of these questions.

Let TW Retirement Strategies help you determine whether a tax-deferred annuity is the right investment option for you.

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