Your Annuity Options

Deferred annuities can be a great way to accumulate money for retirement, particularly if you have many years before retirement. Your money grows tax deferred, which means you pay no taxes on earnings until you begin to withdraw your money.

• Postpone paying income taxes on any earnings until you withdraw money, typically during retirement, when you may be in a lower tax bracket. Any earnings grow tax-deferred.



• Take advantage of non-taxable transfers. In other words, if you transfer money to a different funding option within your variable annuity, you won't have to pay taxes on any earnings you have made. Tax-free switching lets you reallocate money to suit changing market conditions, without worrying about the tax hassles.



• Put in as much money as you want. Unlike Individual Retirement Arrangements (IRAs), there is no IRS restriction on the amount that can be contributed annually to deferred annuities.



• Provide a death benefit to your heirs. If you die, your annuity can offer a death benefit to your beneficiaries without the costs and delays of probate. A spouse who inherits an annuity before distribution has begun can step in as the new owner of the annuity and the tax deferral continues until amounts are withdrawn. If distribution payments had begun, the benefits would generally have to be distributed to the beneficiary at least as rapidly as through the method in effect at the time of the annuitant's death. Taxation will continue to apply to those proceeds.



• Use it as an additional source of retirement income. If you want retirement income beyond what you will receive from Social Security or your pension plan, an annuity can provide it.



• Choose how to receive your money once you retire. When you're ready to start withdrawing your money, you can take it all out in a lump sum or you can receive it in a steady stream of periodic payments -- so-called "annuitizing." When periodic payments are received for life (or life expectancy), rather than in a lump sum, income is guaranteed for life (or life expectancy) and the tax liability can be spread out over a period of years. Some of the earnings are included in each payment and are taxable. Meanwhile, tax-deferred earnings continue to accumulate on the remaining principal and earnings that have not yet been distributed. So, receiving distributions as periodic payments after retirement may further reduce your income tax liability, if you are in a lower tax bracket.