By definition, tax deferred annuity is a financial plan that helps you secure savings for your retirement. For many, securing a comfortable pension is a cause of worry, and for good reason. Nobody wants to be a burden to their family as they age. With tax deferred annuity, you can grow your investments over time and guarantee steady income for your retirement years. While annuity withdrawals are not immune to potential consequences, tax deferred annuity is a safe option for growing wealth. Here’s how you can make a winning investment with tax deferred annuity.
Are Tax Deferred Annuities a Good Investment?
1. Compound Savings Without Taxes
With tax deferred annuity, your contributions are tax deferred, meaning they can compound year after year without being taxed. Once you hit age 59 1/2, you can start collecting your savings, and only then will your withdrawals be subject to income tax. This is a huge benefit; for many retirees, their income will have already declined by the time they withdraw from an annuity, so their tax will already be low.
2. Fixed or Variable Annuity
Bonds are risky to buy when interest rates are low. A fixed annuity can provide a similar rate of return as a bond with much greater safety! pic.twitter.com/zxELoUCIne
— thefinancialqb (@thefinancialqb) August 10, 2017
Tax deferred annuity comes in two forms: fixed or variable. With fixed annuity, you pay a pre-determined monthly amount. This option appeals to conservative investors. Variable annuity, on the other hand, generates income based on the performance of investments. Though a potentially risky move, variable annuity could end up giving you a higher level of income in the long run.
3. A Sure Source of Income
Worried about a stock market crash? Owners of tax deferred annuity can rest assured that their retirement income is not dependent on economic instability. The rise and fall of stock markets do not affect your future withdrawals.
4. Unlimited Contribution Limit
Unlike other forms of investment plans, such as an IRA, tax deferred annuity does not have a contribution limit. This is a great option for those who are nearing retirement age. Once you’re ready to withdraw, you can receive the money either as a lump sum or as fixed periodic payments. Be careful though; annuity withdrawals may incur tax consequences when taken out before the age of 59 1/2.
5. Proceeds Are Given to Heirs
Investing in a tax deferred annuity assures benefit for families. In the event of your death, a beneficiary (also called the annuitant) receives the proceeds. The owner of the annuity may also select multiple beneficiaries, such as a spouse along with children. The annuity is then taxable as regular income.
Interested in learning more about tax deferral? Check out this video to find out:
Everyone wants to enjoy stable, worry-free retirement years. There are many ways to save up money for the future, and the choice depends on your personal preferences and investments. Tax deferred annuity is a great method for growing your wealth, as it defers the payment of taxes to a much later date. As a result, you’re able to have more resources with which to enjoy your well-deserved retirement.
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