Know Some More About Tax-deferred & Income Annuity

Saving money for future is taken very lightly

, but one has to regret his negligence when he is left with nothing at the advanced stage of his life. Thus, if you do not want your life after retirement to be full of financial worries, you must start saving some portion of your income from now onwards without being ignorant further. While discussing about the savings, mention of several annuity schemes becomes mandatory. Among several plans, immediate or income annuity and tax deferred annuity are the most popular programs that are mainly sought-after by the individuals released from their respective jobs.

Income annuity, also referred as immediate annuity, is a scheme in which the annuitant starts receiving payments as soon as the policy gets initiated. As the name itself conveys, it is an immediate form of income received by the retirees, once they enroll for these programs. Unlike immediate annuities, a tax deferred annuity program does not provide immediate payments rather it leaves the decision up to the annuitant or investor itself, when he yearns or elects to receive it. This is one of the major differences between both these most preferable annuity schemes, which ultimately guides the individuals towards making an appropriate selection based on their prerequisites.

Income annuity products are bought, mainly by the individuals during their retirement phase or 'about-to-retire' stage. Based on whether an individual has opted for a fixed annuity or variable alternative, the fluctuation in the amount receivable by the retirees is determined. In case of the fixed investment, no such fluctuation is observed, whereas variable annuity might lead to frequent fluctuations, which might be in a positive or even in negative direction. In case of income annuity, however, it has been found that these insurance products are purchased with a lump sum payment rather installments.

The entire transactional procedure of the tax deferred annuity is divided into two major phases the savings phase and another one is the income phase. The former phase is the time period when you make significant investments into the account, whereas the latter is concerned with the withdrawal of the same, when your investment plan matures into a full-fledged annuity, after which you start receiving your payments at regular intervals. Tax deferred annuity is also classified into two categories fixed and variable, with their own pros and cons. One of the major reasons that drive most of the retirees towards these programs is that it provides a tax free income, when yearly interest is compounded.

The immediate or income annuity is a scheme that leaves it up to the annuitant whether he wants to receive the payment for lifetime or he would like to enjoy it for a specific period of time. Based on several pros and cons associated with the divisions and sub-divisions of these annuity schemes, an individual, already retired or about to retire, can select one of these plans as per his needs and requirements. Either he needs the funds immediately or wants to delay the payment will determine whether he opts for an income or tax deferred annuity deals.

by: Simon Cronje

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