are another tax-deferred way to save for retirement.
While contributions to annuities are not deductible, the annual earnings
on the annuity’s investments are tax-deferred.
When you buy an annuity, you enter into a contract with a life insurance
company. The company agrees to make payments to you and/or your beneficiary
over your lifetime(s) or a set period, usually beginning at retirement.
If you die before payouts begin, a death benefit is payable to your
beneficiary. As with most other tax-deferred savings plans, you will
have to pay federal income tax on any earnings you withdraw from the
annuity during retirement or before, and withdrawals before age 59 1/2
may be subject to the 10% early withdrawal penalty.
Also, surrender charges may apply if funds are withdrawn before the
contract’s surrender period has expired.