Tax-deferred annuities allow for a higher effective investment return by accumulating income on a tx-deferred basis. Income tax on the investment growth is postponed until the money is withdrawn from the contract. Today's annuities provide:

A. Competitive interest rates 
B. Tax-deferred accumulation
C. Lifetime annuity income guarantee available
D. Guarantee of principle and interest by issuer
E. Withdrawals available on demand

An annuity is a contract between an insurance company and an individual buyer. The contract may be purchased with either a single payment or with a series payment.

If the annuity is a "fixed" annuity, the issuer guarantees payment of both principal and interest, subject to certain charges. In a "variable" annuity, the value n of the account can fluctuate up and down with changes in the market value of the underlying securities owned.

The most popular type of annuity is the deferred annuity. With a deferred annuity a premium is deposited with the insurance company. In exchange, they agree to credit to you a certain rate of interest for a certain period of time. The most important feature of a deferred annuity is that the interest accumulates on a tax deferred basis. Except for this important tax advantage, deferral of taxes on interest, an annuity performs much like a bank Certificate of Deposit (CD) in its accumulation phase. For most people who are in higher income tax brackets and plan to invest for a longer period of time, deferred annuities will significantly outperform bank CDs (see chart below).

The Value of Tax Deferral
Withdrawals From A Tax-Deferred Annuity
Withdrawals Before Annuitization
Withdrawals After Annuitization

Variable Annuities
Fixed Annuity
Index Annuity

This document was last modified on July 15, 1999

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