Deferred Annuity

Deferred annuity is a type of annuity contract in which the payment of income, installments or a lump sum is delayed until the investor elects to receive them. Earnings on a deferred annuity account are taxed only upon withdrawal, providing the annuity with a tax benefit. This facility makes deferred annuity a great way to accumulate money for retirement.

All varieties of deferred annuities owned by individuals have one thing in common: any increase in account values is not taxed until those gains are withdrawn. This is also known as tax-deferred growth. There are various types of deferred annuities like fixed deferred annuity and equity indexed annuity etc.

Deferred annuity has two main phases, accumulation phase and annuitization phase. In accumulation phase money investment is made into the account and this is generally between initial purchase and annuitization. In the annuitization phase, the annuitant begins to withdraw regular payments from his/her contract.

Types of Deferred Annuities

Fixed Deferred Annuities :-

It offers a guaranteed interest rate for a set period of time. Earnings will grow tax deferred until you begin to withdraw your income. The company generally resets the interest rate periodically, but guarantees the rate will never fall below a minimum rate stated in your contract.

Variable Deferred Annuities :-

Variable deferred annuity offers investment choice and flexibility. It offer a range of stock and bond investment choices that can provide higher returns than a fixed rate account, but the returns are not guaranteed. Many variable annuities also offer a fixed rate account. All of your earnings grow tax deferred until you begin to withdraw them. For purchasing deferred annuity you can make a single, lump sum contribution and add more money to it later, or you can make multiple contributions over time. Deferred annuity has one significant advantage that it allows purchase of additional premium payment to the contract before annuitization, this process increases the value of the contract.