Your Retirement and Taxes

Is your retirement income taxed with an annuity?
Well, one of the main benefits of an annuity is that you typically get deferral on taxes.

When your annuity gains interest, you aren’t taxed right away. Instead, you don’t have to pay taxes until you actually take the money out. Even then, you only pay regular income tax on the money. This is a major benefit of using an annuity to save for retirement, that many people may appreciate. For example, those with Social Security Benefits!

Any income you get, from working, or from interest on investments, will count towards your total household income. For some people, additional interest would reduce their Social Security benefit amount. But, with an annuity, the income is only counted when you withdraw the money. Because of this, the potential indexed interest in your policy does not impact your Social Security benefit amount. Of course, always consult with a qualified tax advisor on matters like this.

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Buying an Annuity With Post-Tax Money

There are some potential benefits if you buy an annuity with post-tax money. Remember, an annuity (specifically a fixed indexed annuity, or FIA) has two distinct phases: Accumulation and distribution. During the first phase, you may have a tax advantage. It may be able to grow with no taxes* on premium payments. However, again, you will still pay income tax on the money when you withdraw it.

Retirement Account Taxes

When it comes to traditional retirement accounts, like IRAs or 401(K)s, you may be able to defer the taxes on the interest from them, too. This can be done by “rolling over” the money in your account into an FIA. Furthermore, there’s another benefit to doing this: With an IRA or 401(K), there’s a cap on how much you can contribute each year. With an FIA, the cap is typically higher than most traditional retirement accounts.

Retire Early With an Annuity?

An FIA may allow you the chance to retire early. However, only if a specific situation applies. If you meet all of these conditions, then an FIA may be useful to you:

  1. You are under the age of 59 1/2
  2. You have received a large payment from your 401(K) profit-sharing plan, in the form of a large lump-sum
  3. The lump-sum payment was due to a severance package or early retirement package

If these criteria are true of you, you should look into an FIA as a retirement option. An FIA comes with a number of benefits, including deferred taxes on retirement income. Contact our office to learn more about this product, and how it may be able to help you. For some retirees, an FIA is the best of both worlds.

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