- Another important advantage is that there are no IRS-imposed maximum annuity contributions or income limitations that control contribution amounts to non-qualified annuities. Interest gains are not reportable as income for tax purposes until distributed from the annuity. People can contribute as much as they want (up to the limits imposed by the insurer), to take advantage of tax-deferral or variable accounts inside the annuity. Plus, they can add money to their annuity contracts at any time. Contributions to other retirement savings vehicles, like 401(k)s and IRAs, are strictly limited.
- Tax-deferred annuities are suited for people with longer-term investment horizons, who are paying income taxes at a higher combined marginal rate.
- Conservative investors looking for a consistent way to build retirement savings may decide fixed annuities are the ideal choice. However, for those who believe they can do better choosing an annuity's direction, variable annuities offer more flexibility and control.
- Variable annuities offer multiple investment options, with a number of underlying sub-accounts from which to select, similar to mutual funds, providing investors options within their risk tolerance and matching their overall investment strategies. However, return on investment is not guaranteed.
- Many people under age 60 use annuities as a "cash bucket" to meet needs like education costs, mortgage down payments, and retirement income needs. Despite premature withdrawal penalties, annuities have liquidity features.
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