Annuities are tax-deferred, meaning that the earnings from investments in these accounts grow tax-deferred until the funds are distributed as a death benefit or withdrawn from the account. Because annuity earnings are tax-deferred, they cannot be withdrawn without penalty until age 59 1/2 with limited exceptions (e.g., disability). Distributions can be delayed, but not indefinitely.
- In non-qualified annuities, a maximum distribution age is not stipulated by law, but designated by the issuing company. Some companies permit annuity owners to wait until age 70 or 80 or later before beginning distributions.
- In qualified annuities, as with other retirement plans, income distributions must begin no later than the year in which the owner turns 70 1/2.
In either type of annuity, however, if the owner dies during the accumulation phase, the heirs will receive the contract's accumulated amount.
