What is a Tax-Deferred Annuity? A tax-deferred annuity is a contract between you and the insurance company with guaranteed interest and guaranteed annuity income options. There are no upfront sales charges or administrative fees during the life of your contract. Advantages of Tax-Deferred Annuities include tax deferral, stability, may avoid probate, liquidity features, and guaranteed income. One of the primary advantages of deferred annuities is the opportunity to accumulate a substantial sum of money by allowing your premium and interest to grow tax-deferred. Unlike taxable investments, you pay no taxes on your annuity interest until you begin to take withdrawals or receive income. This allows your money to grow faster than in a taxable account, because you earn interest on the money that would have otherwise been paid in taxes. Your tax-deferred annuity is stable and safe. State insurance department laws require insurance companies establish and maintain reserves equal to the cash surrender value of your annuity contract at all times. In addition, state laws require insurance companies maintain minimum amounts of capital and surplus for further contract owner protection. Insurance companies invest your premium dollars in a diversity of investments that are closely regulated by the insurance departments. These long-term investments ensure the stability of the company and help to provide you with a competitive yield. In the case of premature death, your beneficiaries have the accumulated funds within your annuity available to them, with most companies and may avoid the expense, delay and publicity of probate. Most annuities provide you with opportunities to withdraw funds at any time (subject to applicable surrender charges). Most contracts allow some form penalty-free withdrawals after the first contract anniversary. Some also have available certain riders which increase liquidity in the event of confinement to a nursing home or if diagnosed with a terminal illness. Tax deferred annuities provide you with a guaranteed income with a tax-deferred annuity. You have the ability to choose from several different income options, including payments for a specified number of years or income for life, no matter how long you live. With non-qualified plans, a portion of each income payment represents return of premium which is not taxed, thereby reducing your tax liability from your income payments. http://annuitybuyersguide.com/ You can freely reprint this article as long as the author, bio, and live links are left intact.
Source: http://www.ArticlePros.com/author.php?Jeffrey S. McLeod
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