How Fixed Deferred Annuities Work
Fixed deferred annuities can help with your retirement plan because they provide you with a fixed rate of interest, tax deferral,¹ a death benefit, and the potential to turn those assets into guaranteed lifetime income.² The concept is quite simple really. You purchase a contract through a financial professional. Your annuity then accumulates growth through a fixed rate of interest the insurance company credits, and, if you choose, you can annuitize your contract at a later date to get a stream of income for the rest of your life or a specific period of time.
Annuitization or the “annuity phase” is when your contract value no longer exists because you have decided to convert it into an income stream. The payment amount you receive is based on several factors including the value of your annuity at the time you annuitize, the annuitant's age and gender, and the type of payment option you select. Once you annuitize, you are not able to change your decision.
4 1 Withdrawals of earnings will be subject to ordinary income tax and may be subject to an additional 10% federal income tax if taken prior to age 59½. Tax deferral is automatically provided by tax-qualified retirement plans, including IRAs. There is no additional tax-deferral benefit provided when an annuity contract is used to fund a tax-qualified retirement plan or an IRA. Investors should only consider buying this contract in conjunction with a tax-qualified retirement plan or an IRA for the annuity’s insurance features such as lifetime income payments. 2 Any guarantees explicitly referenced herein are based on the claims-paying ability of the issuing insurance company.
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