Tax Deferral
Annuities
Taxes on Retirement Income
A tax-deferred annuity is a retirement strategy that grows cash value. Retirement earnings can be used as a lifetime source of income.
Tax-Deferred Annuity Benefits
Retirement strategies can also be maximized with a tax-deferred annuity. Taxes are not due until a withdrawal is made. Therefore your income can grow without taxes reducing its value. Thus, deferring taxes can grow retirement income over time.
For example, social security benefits are reduced if your income goes beyond a certain level. Interest from CDs, bonds, and other investments must be reported to the IRS. In some cases, this can result in a reduction in social security benefits. Your earnings, however, do not factor into an annuity. Taxes are not due until money is withdrawn. There can be significant benefits to deferring taxes.
Retirement Withdrawals and Taxes
After-tax dollars may offer tax benefits when bought as a fixed index annuity.
In an FIA, there are two main phases: accumulation and distribution.
FIAs are eligible for a tax advantage during the accumulation or growth phase. Taxes are not paid on earnings since taxes are deferred. You are only required to pay taxes when you withdraw money. A fixed index annuity usually only taxes ordinary income, not capital gains. By reducing your liability in retirement, you might be able to earn more. We can help you review your options for taxes on retirement income.
Comparing Deferred Annuities, IRAs, and 401(k)s
IRAs and 401(k)s are meant to be withdrawn at retirement. However, fixed index annuities provide more flexibility than IRA or a 401(K). Some of the benefits include:
- FIA contributions are unlimited.
- Rollover 401(k)s and IRA into index annuities in certain cases.
- The money you earn compounds tax-free each year.
- Tax-free contributions let you keep everything you earn.
To find out how tax deferral impacts your money, contact us.
Tax-Deferred Annuities For Early Retirement
How do taxes on annuities work for early retirees? Several factors determine eligibility for these benefits.
- 59 1/2 is the required minimum age
- Have a 401(k) plan with lump-sum payments
- You must have received a lump sum payment as part of either a retirement package or severance package
It is possible to qualify if you meet all three requirements. Also, you may be able to roll over your IRA or 401(k) into an annuity policy without paying taxes.
