Annuities

Tax-Deferred Annuity

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Tax-Deferred Annuity

A fixed indexed annuity (FIA) allows you to grow your money without having to pay taxes on the interest. This is known as tax deferral. Until you withdraw the funds, there is no income to report and thus no tax forms to file. You only pay taxes on the money when the annuity contract’s distribution stage begins and you start withdrawing funds. Essentially, this enables your money to compound and grow tax-free. This is one of the primary advantages of an FIA.

If you put money into a CD, bonds, or other accounts, you must report the interest as income. Furthermore, if your total income exceeds a certain threshold, your Social Security benefits may decrease. However, if you put your money in a tax-deferred annuity, your earnings are not counted income until you withdraw them. In this case, Social Security is unaffected. You will pay income tax on the money when you withdraw it, but in the meantime, it will grow tax-free. This will ultimately result in more income for you in retirement.

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Annuities Vs 401(k)s and IRAs

An IRA or 401(k) retirement plan account may also offer tax-deferred growth. However, an FIA provides additional benefits. For example, an FIA does not have government-imposed contribution limits. You may contribute as much money as you need, subject to certain limitations. For retirees who have already maxed out their IRA or 401(k), an FIA may be worth considering. Alternatively, you may decide to convert the funds from your 401(k) or IRA into an annuity. Tax implications in this situation will vary, so consult a qualified tax advisor.

Early Retirement With a Tax-Deferred Annuity?

An FIA may also be beneficial to you if you plan on retiring early.

However, there are certain conditions that apply. If you meet all of the following criteria, that means you’re in luck:

  • You are under the age of 59 1/2
  • You received a payment from your employer-issued 401(k) plan, in the form of one lump-sum
  • This lump-sum payment was part of an early retirement or severance package
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This site is for informational purposes only and is not intended to be a solicitation for or offering of any product or investment. The offer for sale of an insurance product may only be conducted in a state where the agent is licensed and the product is approved for sale. The providing of investment advice relating to securities may only be done by a properly licensed individual operating through a licensed affiliate entity, unless otherwise exempt. Comments about past performance are not to be construed as a guarantee or assurance of future performance. This website may contain concepts that have legal, accounting and tax implications. We do not provide specific legal or tax advice, nor promote, market or recommend any tax plan or arrangement. Consult a tax/legal professional for guidance with your individual situation. No representations are made as to the accuracy or completeness of the information contained herein or any information contained in any link provided herein, nor does a consumer visiting the web site create an agent-client relationship.

By contacting Joseph Faragi NJ Ins Lic. #1535851/Joseph Faragi Delaware Lic. #3003044554/James E Leader Jr. Delaware Lic. #3003046271/Faragi Group Retirement Solutions LLC NJ Ins Lic. #3000533178, you may be offered information regarding the purchase of insurance products, including fixed index annuities and life.
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