Annuities are most often purchased to provide interest potential and access to income during retirement. They work well because funds in the annuity may earn interest, which grows tax-deferred until withdrawn. The longer the funds are in the annuity, the more valuable this feature becomes. Funds may be accessed through withdrawals or other stated payout options at a rate declared in the policy.

Under current tax law interest accumulations over the period of the annuity contract are tax deferred until withdrawn. This means that the annuity is free from federal income tax during the accumulation phase. Withdrawals from an annuity are subject to income tax and, prior to age 59½, are usually subject to a 10 percent penalty tax. Please consult your tax advisor or attorney regarding your specific tax situation.

Annuities 101