Tax Deferral

Tax Deferred Annuity

One area of retirement we all face is taxes. Understanding how tax deferred annuity strategies work may be helpful. Of course, annuities are not the only way you can take advantage of tax deferment. Indeed, many retirement accounts or other options allow for this as well. However, it may be useful to review some basics about annuities in particular.

When you have an annuity, you do not pay taxes until you take money out. Your tax rate at the time of withdrawal will depend upon several things. First, what is your income tax bracket at the time of withdrawal? Second, is there anything which might change your tax situation? Regardless, a tax deferred annuity may have some benefits for certain situations. Let’s look at a fixed index annuity (FIA), for example. There is no tax event on the annuity while it incurs potential index interest. So, it is possible that you can delay paying taxes on it. Once you are ready, you pay tax only on the money you take out.

happy couple walking on beach as sun sets tax deferred annuity tallahassee fl

Income Planning

Will tax deferral help your income plan?  A tax deferred annuity may impact you differently. For example, those who have social security benefits. Sometimes, those benefits are based upon income. Those who are over a certain income may not qualify. But, a tax deferred annuity works differently than other income options. You only count the potential indexed interest as income once you withdraw the money. Even then, you only need to count the amount you took out as income. For some people, their fixed index annuity may not impact their social security at all.

After-Tax Income

To clarify, annuities are not a good solution for every one. However, fixed index annuities (FIAs) may have advantages for some retirees. First, you might get potential indexed interest without being taxed. Why? Because no income tax is due on premiums. An FIA is an insurance policy. Therefore, has different tax rules than other types of retirement choices. Secondly, you may be able to buy an FIA with after-tax income. Due to this, you are not required to pay income taxes until you take money as income from the annuity. Of course, individual products and client situations vary. Be sure to learn more about the details of your financial options.

Early Retirement?

An FIA may be a strategy for someone retiring early. Again, each person is different.  However, if you meet all of the following stipulations, reach out to us. We may be able to discuss some tactics to help you defer taxes. Of course, you should also consult with your tax advisor.

Do any or all of the following apply to you?

  1. Age 59½ (or younger)
  2. Might receive a lump sum payment from an employer’s 401(k) profit-sharing plan
  3. Let go or early retirement package situation
  4. Payment is part of early retirement

Let's Chat

Find out more about an FIA and other strategies. Rules say you must pay a penalty for early withdrawal. But, if a client sets up a SEPP (substantially equal periodic payment), the funds may be available sooner. Also, there may not be any penalty, if done correctly. You might even get at your money sooner.

Scroll to Top
Receive the latest news

Subscribe To Our Weekly Newsletter

Get our weekly tips and information about upcoming seminars.