The maximum amount you can contribute is pegged to inflation. Employers also are permitted to make matching contributions. Annuities An annuity is a contract with a life insurance company. You can make periodic payments or deposit a lump sum in an account that earns tax-deferred interest until funds are withdrawn. Then you can take the money all at once from an annuity or receive a lifetime income.
Annuities also are a way to avoid probate.
The insurance company agrees to pay you the income for as long as you live. Meanwhile, as with other types of insurance policies, you can pass on some of the proceeds when you die in exchange for lower monthly checks. Only your earnings from the annuity are subject to federal taxes. Each annuity payment you receive is taxed proportionately, based on the value of the annuity and premiums paid. In addition, you'll pay income tax on earnings.