Tax Deferral
Retirement Income and Taxes
A tax-deferred annuity is a retirement strategy that provides income for the remainder of an individual’s life.
Advantages of Tax-Deferred Annuities
Deferred annuities can deliver powerful tax benefits when used correctly.
Tax-deferred annuities grow tax-free until retirement. A monthly premium accrues. The accrued funds become a monthly payment when the individual retires. Taxes are not due until you withdraw money or receive payments. Therefore, deferring taxes can increase retirement income.
Let’s take a look at an example. The number of social security benefits you receive will be reduced if your income exceeds a certain level. You must inform the IRS of interest earned from CDs, bonds, and other contributions. As a result, social security benefits can sometimes be reduced as a result. Earnings, however, are not included in tax-deferred annuities.
Taxes On Retirement Withdrawals
As a fixed index annuity, after-tax dollars may provide tax benefits. An FIA consists of two main components: accumulation and distribution. Tax advantages are available to FIAs during the accumulation phase or growth phase. Taxes are only due when you withdraw the money. Fixed index annuities generally tax ordinary income only, not capital gains. Reducing your liability in retirement may allow you to earn more. We can help you evaluate your retirement income tax options.
Comparing IRAs, 401(K)S, and Deferred Annuities
An annuity will grow tax-deferred, just like a 401k or IRA. But, a fixed index annuity provides greater flexibility with fewer limitations.
- Contributions to an FIA are unlimited.
- You can roll over certain 401(k)s and IRAs into index annuities.
- Each year, your earnings compound tax-free.
- You can keep all your earnings when you make tax-free contributions.
Tax-Deferred Annuities in Early Retirement
What are the tax implications of annuity for early retirees?
Qualification for these benefits depends on several factors.
- There is a minimum age requirement of 59 1/2
- Have a 401(k) plan that pays lump-sums
- As part of your retirement package, you must have received a lump sum payment
You may qualify if you meet all three requirements. Get in touch with us to help you determine if a tax-deferred annuity is good for you.
