What Is A Deferred Annuity?
There are many different variations of annuities, but when it comes down to it, every type of annuity falls into one of two categories: immediate annuity or deferred annuity. Whether it is a fixed annuity, variable annuity, or equity indexed annuity, it can be classified by one of these two specific types. In the most general terms, a deferred annuity refers to when the payment period starts on an annuity contract.
Deferred annuities behaves exactly as its name implies, it defers payment until a later date. In the case of an immediate annuity, the payment period begins almost as soon as the contract is executed, or immediately.
The deferred annuity definition is therefore simply that it is an annuity that defers payment until a later date in time. The annuity owner funds the annuity account in either a single premium deferred annuity, or continues to add value to the account throughout the accumulation period.
As each contract will inevitably fall under either deferred or immediate annuity status, the same sort of variation applies to any account. The different types of deferred annuities can be any of the following types:
- Fixed Deferred Annuity
- Deferred Variable Annuity
- Deferred Life Annuity
- Deferred Income Annuity
- Deferred Equity Index Annuity
- Etc…
Deferred annuity taxation is similar to other forms of annuity taxation. The annuity enjoys tax deferred status on the growth inside of the account. The account is taxable upon the distribution of funds. Each payment distribution from the deferred annuity contract is split into two parts: taxable and non-taxable. An exclusion formula is calculated and applied to each distribution to determine the taxable portion of the payment. In this sense a deferred annuity can also be considered a tax deferred annuity.
In the case of single premium deferred annuities, the account owner makes a onetime payment into the account. Rather than immediately taking distributions from the account, the payments are postponed to a later date. The account is allowed to grow tax-free in the accumulation phase.
A deferred annuity plan can be a good way to establish a series of payments in the future, and is commonly used in retirement planning. A fixed annuity is frequently used in this regard because of its relative safety and consistent and predicable income payments.
Common misspelling: deferred anuity, defferred annuity, deferred annuty
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