Single Premium Deferred Annuities
Deferred annuities are the entire class of annuities whereby you make a single
deposit, or multiple deposits over time, and your goal is the accumulation
of funds for later, such as retirement. A fixed deferred annuity is one in
which the funds you invest go into the general fund of the insurance company,
the insurance company guarantees your principal and pays you a fixed rate
of interest. That rate may be guaranteed for a year at a time or for many
years (a multi-year guarantee annuity). Annuities that have stated interest
rates and guaranteed principal are called deferred fixed annuities.
A variable deferred annuity has the same objective, such as accumulation
of funds for retirement. However, rather than having your principal
guaranteed, the insurance company provide you a menu of investment
options, like mutual funds. You select how you want your money
allocated among these investments and based on your choices your
balance will hopefully grow. However, you could lose money if
when you invest in these stock and bond accounts and they decline
in value.
The common feature of any deferred annuity is that any interest
and profits grow on a tax deferred basis—tax deferred until
you make withdrawals.
Deferred Annuities in General
On a fixed annuity, you can shop for rates which are published
at various websites or you can get assistance from an insurance
agent or financial advisor. The deferred annuity definition
is a deposit with an insurance company that gains interest
and all taxes on that interest are deferred until withdrawn.
Deferred annuities can be either a non-qualified deferred annuity
meaning it is purchased with regular savings or a qualified
deferred annuity meaning it has been purchased with IRA or money
form other retirement accounts. A flexible premium deferred
annuity is one in which multiple deposits are made, annually
for example, as opposed to a single premium deferred annuity
(one single payment). Every annuity is a tax deferred annuity
as no matter what type you buy, earnings are not taxed until
withdrawn. Therefore, a single payment deferred annuity is also
referred to as single premium tax deferred annuity
and a single payment deferred variable annuity is by nature
a tax deferred variable
annuity.
Life Annuities
A life annuity may start out as single premium deferred life
annuity. If Mr. Jones buys a tax deferred annuity at age
50 and allows it to accumulate to age 65 and then converts
it to monthly payments for life, we have an example of a
deferred life annuity. Most life annuities however are purchased
as immediate annuities—they begin making payments back to the
investor immediately after the premium is deposited. |