What is an Annuity?
Tax deferred annuities are contracts that are issued by insurance companies that offer a guaranteed rate of interest and guaranteed payout options. Interest earnings inside of annuities grow on a tax deferred basis unlike other investments. Taxes are paid only when the money inside of the annuity is withdrawn. There are several advantages of tax deferred annuities. Annuities offer very competitive returns that exceed CD’s, money market and savings accounts. Unlike other investments, these competitive returns are sheltered by taxes for as long as the earnings remain inside of the annuity.
Single premium annuities that offer several payment options to the contract holder that currently offer competitive rates of interest and in some cases bonus rates of interest.
Variable annuities can offer many benefits for investors that may require the simultaneous use of several other types of investments and accounts to duplicate. The real value of these products can only be truly evaluated in the context of the purchaser’s tax situation, investment and retirement objectives and time horizon. The drawbacks of this type of investment are the complexity, high fees, poor cost basis and poor tax treatment.