What Are Fixed Tax Deferred Annuities And How Do They Affect Annuity Rates?

A fixed tax deferred annuity, sometimes also called just a tax deferred annuity, is an annuity contract which legally binds you and the insurance company and is an interest bearing policy which is guaranteed and has payment options which are also guaranteed. The annuity policy provider credits your policy with any interest earned, which is a safe and competitive amount, and there are no taxes due on this money until you withdraw the interest or start receiving the annuity income payments. This is a great way to do an annuity policy because of the tax deferred status, and the difference it makes in compounded interest. The tax deferment allows you to put off paying taxes on these funds until a future date, and this means money which would go to the Internal Revenue Service earns annuity rates instead for you. As long as the funds are left in the annuity account you owe nothing in taxes and your money just keeps growing. This allows a greater accumulation of money over a period of time that is much shorter, and you get advantages both with savings and in taxes owed.

The difference between annuity rates with tax deferred annuities and fully taxable annuities can be great, leading to thousands of dollars lost over the years if you choose the taxable annuity over the tax deferred annuity. If you invest twenty five thousand dollars, with an annuity rate of six percent, into a taxable annuity policy, over the years you will accumulate almost seventy two thousand dollars. The same deposit and annuity rate with a tax deferred annuity policy, over the same number of years, will result in a balance of a little over one hundred and seven thousand dollars. This is a difference of thirty five thousand dollars, which is substantial, and this extra amount came from the compounded interest on the funds that would have been used to pay taxes. Both types of annuity policy will earn fifteen hundred dollars per year in annuity rates. With the taxable policy, four hundred and twenty dollars will be paid to the IRS, leaving only slightly more than a thousand dollars in interest to be compounded. With the tax deferred annuity plan, the whole fifteen hundred dollars is available to be compounded, leading to thousands of dollars more over the years simply by waiting to pay taxes on these annuity funds.