Category: Retiring article

Understanding Tax-Deferred Annuities

You hear a term like “tax-deferred annuity” and wonder, “Should I have one?” With so many savings products out there, it’s natural to question whether you’re making the right choices for you and your family’s financial future. Understanding annuities and the advantages they offer is a worthwhile addition to your financial education.

Types of Tax-Deferred Annuities

An annuity can be an effective option for turning your savings into a predictable, lifetime income stream in retirement.1 Unlike IRAs or employer-sponsored retirement accounts, if the annuity is nonqualified – that is, made with previously taxed money – then you can invest beyond your IRA limits, says David Neishel, a senior national sales representative at Amica Life.2 You can choose the amount you want to save in an annuity, with no tax due on the earnings until the amounts are withdrawn. The more you invest in an annuity, the greater the amount of potential guaranteed payouts.

A tax-deferred annuity gives you the opportunity to contribute to your financial future as life allows.

There are different kinds of annuities based on your financial objectives. Amica Life offers two tax-deferred options:

  • Flexible Premium Deferred Annuity (FPDA):

    If you’re saving for retirement and balancing contributions with more immediate expenses, you can customize how much and how often you put in money before retirement. “Many people make regular deposits, but some people don’t even make a contribution on an annual basis,” Neishel explains. “Maybe they’ll let it go for a year or so, and then say, ‘Now I have extra money I want to deposit.’ So it’s totally up to the customer.”

  • Single Premium Deferred Annuity (SPDA):

    Do you have liquid assets available now? Make a lump-sum contribution that can grow until you’re ready to start receiving payouts, which can be made on a regular basis and can be guaranteed for your lifetime.

Amica Life’s FPDAs and SPDAs are fixed-rate annuities, which earn interest at a guaranteed minimum rate or higher and have several advantages:

  • Predictability:

    Once you are ready to receive payouts, you can choose when and how often to receive them – monthly, quarterly, semi-annually or annually. You will have a steady income stream that won’t be affected by market fluctuations.

  • Growth:

    You won’t pay any taxes while your money is earning interest, so the money you put in may grow faster than it would in a taxable account with the same interest rate.

  • Flexibility:

    If you’re several years away from retirement and have competing financial priorities, you could choose an FPDA to make smaller payments on your own schedule. When you’re no longer paying a mortgage or supporting children, for example, you can increase your premiums. Meantime, you have a guaranteed minimum interest rate while your account grows, says Todd Oster, Assistant Vice President at Amica Life. “You can get the benefit of higher interest if rates rise before you begin payouts, but also have the protection to know that rates will never go below the floor in your Amica Life annuity.”

When May a Tax-Deferred Annuity Be the Right Option?

Like any financial product, you must consider your individual situation to determine whether an annuity is right for you.3 Consider a couple of scenarios where you could benefit:

  • You have a known recurring expense, such as property taxes, that you don’t want to worry about paying with Social Security and 401(k) income after you retire.
  • You have sizable funds to contribute and want them to grow tax-deferred so you can collect payouts when you may be in a lower tax bracket.

A tax-deferred annuity gives you the opportunity to contribute to your financial future as life allows – and with Amica Life, the confidence you’ll receive payments after you retire. “When I’m putting my retirement money into something, I want to know that I’m with a quality company that’s been around for a long time, has a good reputation and the money’s going to be there when I need it,” Oster says.

As you map your strategy for retirement security, keep tax-deferred annuities in mind. For more information, contact an Amica Life annuity specialist today.

  • 15 Things You Need to Know Now About Annuities, U.S. News & World Report, 2019.
  • There are contractual limits on the maximum permitted to be invested in Amica Life annuities.
  • Before purchase of any IRA, you should consult with a tax advisor to ensure that you have selected the best options for your retirement. Guarantees are subject to the claims-paying rating of your insurer. Fixed annuities are not insured or guaranteed by any agency that insures deposits.

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