Annuities Annuities are either deferred or immediate. Deferred annuities provide income payments that begin at a later date. The primary reason for purchasing a deferred annuity is to accumulate money on a tax-deferred basis, which can then provide an income at a later date. Immediate annuities are contracts which begin paying installments generally within 12 months of the premium payment. The main reason for purchasing an immediate annuity is to obtain a regular income, most frequently for retirement purposes.
Deferred annuities can be either single premium or flexible premium.
Flexible premium contracts on the other hand permit the contract owner to make additional contributions after the initial premium. Annuities may be either fixed or variable. A fixed annuity provides for tax-deferred accumulation at a fixed rate of interest. The value of a variable annuity is dependent upon the performance of an underlying portfolio of investments such as stocks, bonds and money market accounts. Under current tax law, a contract owner is not taxed on increases in the value of an annuity contract until distributions occur, either as a lump sum, withdrawal or as annuity payments.