There is no annual contribution limit that you must meet in order to open a tax-deferred annuity retirement account, and that's one advantage you gain over those who open IRAs and 401(k) retirement accounts. Your annuity account allows you to keep putting away more money for your approaching retirement date without you being asked for an annual contribution limit to open the account. This type of account comes in handy as an extra source of income when you are collecting social security benefits and also receiving pension benefits from your job.
How Annuity Accounts Work
Your annuity account investment money compounds each year, and you won't be receiving a tax bill from the government as your money keeps compounding every year. So all you have to do is make your annuity payments to grow your account. You are rewarded with better interest rates from the insurance company than a bank can offer you for a regular savings account. The company continues to invest your money, which is working all the while to build your income and fatten your account for the day that you retire.
You Have Optional Payment Choices
Of course you don't have to collect a lump sum at retirement. You do have the option of setting up certain amounts of money to be sent to you from your retirement funds for a time period of your choice. You can even spread out payments that you wish to withdraw from your annuity account and use that money as a steady income for your foreseeable retirement years.
Annuity Tax Fee Charges
There are tax fees that you will have to start paying when you withdraw amounts of money or when you receive periodic annuities. That happens when you retire. Make sure that you are told about the fees up front so that you can decide whether to go ahead with an annuity account. Be aware that some annuity fees are quite high.
When you set up the annuity account, it is a long-term contract that you open with an insurance company. The company's business is created for retirement purposes, and you contribute either a single contribution amount or a series of payments by way of your signing a contract. The insurance carrier is expected to make periodic payments to you during your retirement years without any delay.
Taxes You Pay During Your Retirement Years
Only when you begin drawing money in your retirement years or when you begin to receive periodic payments will you have to pay tax-deferred growth income taxes. Understand too that if you begin withdrawing money from your account before reaching the age of 59.5 years old, you could end up paying for an additional 10 percent tax. It's important for you to ask questions and learn as much as you can about annuity accounts before you sign a contract.
Talk to a finance professional to learn more about annuities.
