Annuities: Tax Deferral

Deferred Annuity Taxation

Learn How to Benefit

Tax Deferral
How to Benefit from

Deferred Annuity Taxation

Annuity contracts can grow, tax-deferred, without a contribution limit (unlike an IRA or 401(k)). Unless you make a withdrawal, there are no tax forms to file and no income that needs to be reported. In this way, there is no immediate tax on earnings. You pay taxes only when you withdraw money. Effectively, your interest compounds your money without taxes. Then, when you take your money out, you pay taxes at that time.

Deferred annuity taxation can help maximize other sources of retirement income as well. For example, Social Security benefits may decrease if your annual income is over a certain amount. If you earn interest from CDs, bonds, or other investments, you must report this as income to the IRS. In some cases, this extra income causes your Social Security benefits to drop off. However, if you place your money in an annuity, the earnings do not count against you. Once you take money out, of course, there is taxation. But, holding off on taxes while your money grows can have impactful benefits. Especially on your current annual income.

fixed deferred annuity taxation
After Tax Dollars

& Deferred Annuity Taxation

If you purchase a fixed index annuity with after tax dollars, you’ll enjoy some tax benefits. A fixed index annuity has two main parts. First is the accumulation phase. Second is the pay out phase. In the accumulation phase, your fixed index annuity has a tax advantage. It grows tax-deferred. In other words, you don’t pay income tax on your premium payments. In fact, you don’t pay taxes on the earnings until you withdraw money. Even then, you only pay ordinary income taxes on your earnings. Less tax liability could mean you have more money for retirement.

Deferred Annuity Taxation

vs. IRA and 401(k)

Traditional IRA’s and 401(k) allow tax deferrals, too. Nonetheless, deferred annuity taxation can have some additional benefits. For example, fixed index annuities have no government defined contribution limits. You can contribute as much as you’d like. So, if you’ve already maxed out your 401(k) (or other qualified plans), a fixed index annuity could be an option.

Or, maybe you want no limits on your retirement income. Fixed index annuities may work for you, too. In fact, in many cases, you can even roll over your IRA or 401(k) into a fixed index annuity. Tax implications may vary, so be sure to seek guidance from a qualified source. At Messina’s Wealth Management, we’re here to help you find the right strategy for you.

Early Retirement & Tax Deferral

Contact us today to learn if tax deferral options are right for you.

Fixed index annuities

can provide additional tax saving options for some early retirees.

Here are a few key criteria you must meet in order for these benefits to apply. You must be able to check “yes” to all three conditions.

(1) You must be under the age of 59 1/2

(2) You received a big lump sum payment from your 401(k) profit sharing plan

(3) This lump sum payment was part of a severance package or early retirement package

If all three of the above statements apply to you, you may be in luck. Your money may be able to “roll over” into an annuity policy, without taxation. There are also ways to access this money without penalty. Typically, if you withdraw funds before 59 1/2, you would be penalized. However, if you set up a “Substantially Equal Periodic Payments” (SEPP) program, you may be able to withdraw funds from the account. This is a potential strategy for accessing funds you may have thought were unavailable until retirement. As you can see, deferred annuity taxation certainly has its benefits.

YES! I would like to learn all my retirement tax options.

Please contact me for a no-cost retirement review.

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