Tax deferral is a key feature that can help your savings accumulate faster than it would in a comparable taxable account.
Unlike a taxable account, you will not have to pay current taxes on any interest or earnings until money is withdrawn.
While your money remains in the annuity, your principal earns interest. And your earnings earn interest.
Money that would have been paid to federal income taxes stays in the account, earning interest.
Since you can defer paying taxes on your earnings today, a fixed annuity can be an ideal way to build for your future financial needs.
Depending on your current and future tax rates, you may realize substantial tax savings by making withdrawals from your tax-deferred fixed annuity during retirement—that is, when you might be in a lower tax bracket.
Keep in mind, if you take money out of your annuity prior to age 59½, the IRS will consider the withdrawal a premature distribution, in which case, you may be subject to a 10% federal early withdrawal penalty. Contractual withdrawal charge fees (surrender charges) may also apply.
Tax-qualified contracts such as IRAs, 401(k)s, etc., are tax deferred regardless of whether or not they are funded with an annuity. If you are considering funding a tax-qualified retirement plan with an annuity, you should know that an annuity does not provide any additional tax-deferred treatment of earnings beyond the treatment by the tax-qualified retirement plan itself. However, annuities do provide other features and benefits such as income options.
Neither American General Life Insurance Company nor its agents or representatives are authorized to give legal, tax or accounting advice. Please consult your attorney, accountant, or tax advisor on specific points of interest.
The Western National series of annuities is issued and underwritten in New York by The United States Life Insurance Company in the City of New York and in all other states by American General Life Insurance Company.