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Tax-advantaged life insurance products. Deferred annuities offer deferral of taxes with the option of withdrawing one's funds in the form of a life annuity.
Copyright © 2012, Campbell R. Harvey. All Rights Reserved.
An annuity in which the annuitant does not begin to receive payments until some future date. A deferred annuity has two phases: a savings phase and an income phase. During the savings phase, the annuitant places money into the annuity, which invests it on behalf of the annuitant. In the income phase, the annuitant receives payments. It is important to note that a deferred annuity is not taxed until the income phase begins. It also pays a death benefit to the survivor(s) of the annuitant. Nearly all retirement plans are deferred annuities. See also: IRA, 401(k).
A retirement plan in which an employee makes tax-deferred contributions from his/her pre-tax income. The employee is not taxed on the contribution until he/she begins to make withdrawals after retirement. Strictly speaking, a 401(k) is a tax-deferred annuity, but the term especially applies to a 403(b) plan, which is directed at teachers and employees of tax-exempt organizations, such as charities or churches.
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