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Annuities

An annuity is an insurance contract. An annuity contract is created when an individual gives a life insurance company money which may grow on a tax-deferred basis and then can be distributed back to the owner in several ways. The defining characteristic of all annuity contracts is the option for a guaranteed distribution of income until the death of the person or persons named in the contract.

There are two possible phases for an annuity, one phase in which the customer deposits and accumulates money into an account (the deferral phase), and the annuity phase in which the insurance company makes income payments until the death of the customers (the "annuitants") named in the contract. Annuity contracts with a deferral phase always have an annuity phase and are called deferred annuities. It is possible to structure an annuity contract so that it has only the annuity phase; such a contract is called an immediate annuity.

A deferred annuity allows you to save additional money in a tax-deferred account above and beyond what you may be saving in an employer's retirement plan or IRA. Deferred annuities can help build retirement savings on a tax-advantaged basis, and can help supplement your before-tax retirement plans.

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