Using Annuities for Retirement Savings

Key strengths

  • Interest generated by an annuity accrues tax deferred until withdrawn

  • You can receive payments from the annuity for your entire lifetime, regardless of how long you may live

  • There are normally no contribution limits

  • There are many different types of annuities to choose from

  • You pay taxes only on the earnings portion of annuity payments

  • At death, proceeds from an annuity pass free from probate to your named beneficiary

Key tradeoffs

  • Annuities carry fees and expenses

  • May have limitations, exclusions, holding periods, termination provisions, and terms for keeping the policy in force

  • May have surrender charges

  • Contributions are not tax deductible

  • There may be tax penalties for early withdrawals prior to age 59½ (subject to exceptions)

  • Once you elect a specific distribution plan, annuitize the annuity, and begin receiving payments, that election is usually irrevocable (with some exceptions)

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