Tax Qualified Deferred Annuity
A deferred annuity from taxation is one where the contributions are placed tax free. Annuities are one of many qualifed plans that allow the payments to be free from taxation.
A deferred annuity which grows by interest rate earnings is a fixed deferred annuity. A deferred annuity that permits allocations to stock or bond funds and for which the account value is not guaranteed to stay above the initial amount invested is called a variable annuity (VA).
A new category of deferred annuity, called the fixed indexed annuity came about in 1995. fixed indexed annuities may have features of both fixed and variable deferred annuities. The insurance company typically guarantees a minimum return for EIA. An investor can still lose money if the annuity is surrendered early, before a "break even" period. An oversimplified expression of a typical EIA's rate of return might be that it is equal to a stated "participation rate" multiplied by a target stock market index's performance excluding dividends. Interest rate caps or an administrative fee may be applicable.
Deferred annuities in the United States have the advantage that taxation of all capital gains and ordinary income is deferred until withdrawn. In theory, such tax-deferred compounding allows more money to be put to work while the savings are accumulating, leading to higher returns. A disadvantage, however, is that when amounts held under a deferred annuity are withdrawn or inherited, the interest/gains are immediately taxed as ordinary income.
Tax Deferred Annuities
By Nick Jameson
Deferred annuity is a type of annuity contract that delays payments of income, installments or a lump sum until the investor elects to receive them. This type of annuity has two main phases, the savings phase in which you invest money into the account, and the income phase in which the plan is converted into an annuity and payments are received.
Tax-deferred annuity is regarding receiving payments usually at retirement or at some future date. However in most cases, there are systematic withdrawal of payments beginning thirty days after the purchase of your annuity, up to 10% per year. With deferred annuity, one have the option of paying in the lump sum that is all at once. Otherwise periodic statements could be made either fixed or variable. These funds mature as tax-deferred until for one is ready to receive payments. If one does not need immediate income from annuity, then tax deferred annuity is generally recommended. It makes up a large majority of all annuity sales.
This annuity is basically meant for earning additional interest on the money that would otherwise have been paid as taxes. The main importance of tax deferred annuity is that it allows to delay paying taxes on the growth in an annuity until you actually withdraw your funds.
Deferred annuity considered best for people who want to save on a tax-deferred basis for many years. On contrary to an immediate annuity, Tax on deferred annuity do not become payable until some years after its purchase. Converting build up capital into an annuity, the single premiums or regular premiums are capitalized during the deferred period. Deferred annuity typically stipulate that payments be made to the Annuitant at a later date when the annuitant reaches a certain age.
Nick Jameson is a well known author who writes on Immediate Annuities for the website www.fixedannuitylibrary.com
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