Deferred Annuities
A Deferred Annuity lets you set money aside—via lump sum or a series of premium payments —so it can grow tax-deferred until you turn it into income later.
During this “accumulation phase,” interest or market gains (for variable annuities) compound untouched by current taxes; in the “distribution phase,” you can annuitize for guaranteed lifetime income or take systematic withdrawals.
Key Points
Tax-deferred compounding
Interest earnings are sheltered from taxes until you withdraw, often boosting long-term growth.
Flexible funding
Contribute periodically, systematically, or all at once—with no IRS cap on after-tax dollars. IRS limits will apply to annuities held within a qualified plan.
Future income potential
After the deferral period you may annuitize for a guaranteed income stream that can’t be outlived.
Creditor & Medicaid considerations
Deferred annuities are creditor-protected in most states, and an “actuarially sound” annuity can be excluded from Medicaid spend-down rules for a well spouse.
Backed by insurers, not FDIC
Any guarantees rely on the carrier’s claims-paying ability and for variable annuities, do not apply to the performance of the variable subaccounts which will fluctuate with market conditions.
Additional Important Information
A long history
From Roman “Annua” to today’s retirement plans, annuities have funded incomes for millennia.
Compare before you commit
Rates, fees, surrender schedules, and rider options vary widely; align choices with your goals, risk tolerance, and time horizon.
Outcome-Based Planning™
Identify the minimum amount of assets that you want to annuitize to help meet core income needs, as appropriate to your situation.
Coverage Summary
Feature
What to Expect
Typical Surrender Charge Periods
3, 5, 7, 10 years (longer term = higher rate)
Guarantees
Principal and credited interest; subject to insurer. Variable annuities are subject to market risk and may lose money.
Free-withdrawal allowance
Most contracts allow 10 % of the account value per year without surrender charge
Taxation
Interest taxed only when withdrawn; ordinary income rates apply. For annuities within a qualified plan, all withdrawals are fully taxable.
| Feature | Fixed Deferred | Fixed-Index Deferred | Variable Deferred |
|---|---|---|---|
| Principal Risk | None (insurer bears) | None (insurer bears) | Owner bears market risk |
| Growth Mechanism | Guaranteed multi-year rate (e.g., 3 %–5 %, varies by carrier and product)s | Potential for index-linked credits with floor 0 % | Sub-account market returns |
| Typical Surrender Charge Period | 3–10 yrs | 5–10 yrs | 5–10 yrs |
| Tax Treatment | Earnings taxed when withdrawn for NQA, Annuities within a qualified plan are fully taxable | Same | Same |
| Liquidity | Generally10 % annual free of surrender charges, which decline over time | Same | Same |
When might a Deferred Annuity be a good choice?
A Deferred Annuity could be a smart option if you want to grow your savings now and turn it into guaranteed income later—typically years down the road.
In short, deferred annuities are designed to build a financial cushion now and deliver financial assurance for later. Whether you choose a fixed, indexed, or variable version, the goal is the same: grow now, get steady income later—on your terms.
Some factors that may make it appropriate for you:
- You’re still working or a few years from retirement
- You want tax-deferred growth, meaning you don’t pay taxes on interest earnings until you take the money out.
- You’re not ready for income yet, but you want the option to create guaranteed lifetime income when the time is right.
- You want to protect some of your retirement savings from market risk (depending on the annuity type).
Bottom Line
Deferred annuities offer a tax-efficient bridge between today’s savings and tomorrow’s income.
Choose the variant—fixed, index, or variable—that matches your risk tolerance and timeline, and work with an experienced annuity agent and advisor to integrate it into a holistic retirement strategy.
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