By Peter Katt Deferred annuities are popular because returns are tax-deferred, but if the full cycle of accumulations and distributions are considered, most purchasers would make a different choice. D eferred annuities are remarkably popular financial assets. A.M. Best s Policy Reports . Declared interest rates will closely resemble results in each company s general account, which is primarily invested in bonds held for a yield. Variable annuity premiums are invested by each individual annuity owner, selecting from various mutual fund subaccounts offered by that particular insurance company.
Deferred annuities are popular because interest earnings or investment returns are tax-deferred.
It is my opinion that if the full cycle of accumulations and distributions is examined, most purchasers of deferred annuities would make a different choice. Please note that, although fixed and variable deferred annuities are very dissimilar because of their investment differences, in this article I am neutral with respect to these investment differences. I have used fixed annuities as examples in this column because they are easier to explain. Deferred annuities are taxed on an interest first basis. Finally, a partial withdrawal may be subject to surrender charges.