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Tax-Deferral

Relayer Benefits Group is here to help you understand how a tax-deferred annuity works. Schedule a one-on-one consultation with us and we can review your individualized retirement strategy. We’ll help you decide if you should consider a tax-deferred annuity.

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How Does a Tax-Deferred Annuity Work?

What kind of retirement are you planning for, and exactly what steps are you taking to insure it? Are you putting enough money into savings? Are you taking advantage of all available retirement options? One option for planning your retirement is what’s called a tax-deferred annuity.

What are the benefits of a

Tax-Deferred Annuity?

So you may ask yourself, “how does a tax-deferred annuity work?” Essentially, a tax-deferred annuity is a long-term savings contract that can grow, tax-deferred. The money contributed to an annuity is tax-deferred. Therefore, you can contribute money before taxes. As a result, no tax forms to file, and no income that you need to report. You only pay taxes when you withdraw your money. Between the time when you contribute funds and the time when you withdraw them, it’s possible for your money to grow significantly. You pay taxes when you make that withdrawal.

Deferred annuity taxation can also help retirees get the most out of their other retirement accounts. For instance, if your income reaches a certain amount you may see a decrease in your social security benefits. The income must be reported to the IRS if you earn interest from bonds, CDs, or other investments. In some cases, this causes social security benefits to drop. However, if you place your money in as an annuity, these earnings won’t count against you. Of course, once you take out the money there will be taxation. It can yield great benefits though, deferring taxes while your money grows.

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Tax-Deferred Annuities Vs 401(K)s and IRAs

Let’s talk a bit more about tax deferrals. A tax-deferred annuity can help you get ahead on your retirement savings. Not unlike traditional IRAs and 401(K)s, annuities allow for tax deferrals. Unlike those more traditional plans, however, tax-deferred annuities don’t have contribution limits set by the government. This means that, with certain guidelines, you can put as much money in as you like. This makes them great for retirees who want to save more than what a 401(K) or IRA would allow.

Maybe you don’t want any limits at all on how much you can save for retirement. If this is the case, Fixed Indexed Annuities may also work in your favor. It’s possible much of the time to “rollover” your IRA or 401(K) into an FIA. Tax implications may vary, so it’s best to seek advice from someone qualified. At Relayer Benefits Group, we can help you, whatever your financial needs may be.

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Retiring Early with a Tax-Deferred Annuity

For some early retirees, FIAs could provide additional tax savings. However, you must meet a few criteria in order for these benefits to apply:

  1. You must be under the age of 59 1/2.
  2. You must have received a lump-sum payment from your 401(K) profit-sharing plan.
  3. This lump-sum payment must have been part of an early retirement or severance package.

If you meet all these criteria, you may be in luck! Your money may be able to rollover into an annuity policy without being taxed! There are a few ways that you can access this money without being penalized. Normally, if you withdraw funds before you turn 59 1/2, there’d be a penalty. But if you set up a substantially equal periodic payments program or a SEPP program, you might be able to get money from the account. This is a possible strategy to access the money you thought you couldn’t touch until retirement. Deferred annuity taxation can certainly have benefits for retirees.

So in short, how does a tax-deferred annuity work? It allows you to put off taxes on the money you put into it until you need it for retirement. Contact Relayer Benefits Group today to see if a tax-deferred annuity is right for you.

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