What is a Tax Deferred Annuity - Everything You Need to Know

We should all live life to the fullest. And in order to do so, one needs money. But money is a commodity which has a very volatile nature. Today, you may be in a cushy job making a handsome amount of money or running a thriving business and enjoying all the pleasures of life. However, as the recent recession has shown us, the success could be momentary because you never know when the market could crash.

However, there are ways to ensure that you have a steady source of income in lean periods as well. One way of ensuring this is to invest money in safe financial products. One of the safest financial products in the market today is annuity. In an annuity, you pay a certain amount over a length of time and then the insurance company pays you a sum of money in return as an interest on your investment.

There are various kinds of annuities but one of the most popular types of annuity is a tax deferred annuity. So what exactly is a tax deferred annuity?

A tax deferred annuity, speaking in financial terms, defers the tax payments on your investments until the time of withdrawal. Tax deferred annuity can be explained further as follows. A tax deferred annuity requires you to invest a certain amount of money periodically over a certain length of time.

The length of time and the amount to be invested is decided at the time of buying the annuity. After you have bought the annuity, you cannot the lock in period or the amount decided. Once the lock in period is over, you can start withdrawing the amount.

But while withdrawing amount too, the tax deferred annuity does not allow you to withdraw the entire amount all at once. You can withdraw only a certain percentage of amount at one go. No the advantage of tax deferred annuity is that in the lock in period, when you are investing your money, the investment is not subjected to any tax deductions. This makes your investment grow much more than other financial products.

However, there is a common confusion people have when it comes to a tax deferred annuity. This kind of annuity is not tax free, it is just tax deferred. The tax deductions take place only on the withdrawals you make.

This type of annuity can be fixed annuity or a variable annuity. A fixed annuity offers you a fixed rate of interest which is determined by the insurance company. A variable annuity on the other hand is linked to the market and the interest rate is decided depending on the market conditions.

A tax deferred annuity is a perfect choice for people who have many years to go before they retire. The large time gap allows your investments to grow to the maximum, thus ensuring a comfortable, happy, peaceful and an independent old age. And we all know that being independent is of paramount importance in today's world.

Click on the link below to learn more about Annuities.

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Call Robert Eldridge directly at 800-643-7544.

Robert Eldridge holds over a decade of experience as a multiline agent in multiple states and currently serves on the membership council of the National Association of Insurance and Financial Advisors

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