Overview & Policy Types
Two Main Annuity Strategies
A deferred annuity begins in the accumulation phase and later converts to the payout (annuitization) phase. You may make one or more payments, which grows tax-deferred as long as they remain in the annuity. Earnings are taxed as ordinary income when they are withdrawn from the annuity.
With an immediate annuity, regular payments are generated within a short period of time. Payments can be structured with great flexibility. Typically, an immediate annuity becomes a binding contract once it is funded and cannot be broken. The principal investment is surrendered in return for the promise of a guaranteed income stream paid by the insurance company.
Annuities are tax-deferred vehicles and unlike other retirement accounts such as 401(k)s and IRAs, there is no annual contribution limit.
An Annuity grows tax-deferred.
When you eventually make withdrawals, the amount you contributed to the annuity is not taxed, but your earnings are taxed ordinary income.
There is a 10% federal tax penalty if you withdraw money before age 59½ for reasons other than death or disability.
Quick Video About Annuities
Get a quick overview of the four types of annuities from Danielle Corey of Vanguard Annuity and Insurance Services.