Can I Defer Payment From My Variable Annuity?
Original post by Will Gish of Demand Media
Investing in retirement entails making important decisions regarding which type of account(s) you put your money in. From 401ks to IRAs and annuities, a variety of options exist. Within each of these options, still more options exist, including traditional IRAs, Roth IRAs and variable annuities. Determining whether you can defer payment from your variable annuity comes down to the type of variable annuity you invested in and the payment scheme you elected.
Variable annuities combine a traditional retirement account with an investment portfolio. These accounts allow you to put some of your annuity contribution aside to grow tax-deferred while investing the rest of your contribution in a diverse portfolio of stocks. When you purchase a variable annuity, the insurance company you purchase it from allows you to choose your level of risk. Based on this level, it presents you with a number of options for the investment portion of your annuity. These accounts often include insurance provisions to protect you in the event that a portfolio goes bust and you lose a significant portion of your investment.
The question of whether you can defer payments on a variable annuity comes down to two considerations, the terms of your annuity account and the type of payment you elected upon purchasing your annuity. When you purchase an annuity, you chose to receive immediate or deferred payments. The immediate payment scheme begins paying automatically and immediately upon reaching a pre-determined point in time. The deferred payment scheme collects payments until the account owner requests money accumulated since the previous payment.
If you elect immediate payments upon purchasing a variable annuity, determining whether you can switch to deferred payments comes down the specifics of your account. The prospectus of the account contains all the "fine print" information on an annuity, from fees and investing options to death benefits and payout options. You can obtain this document from the company you purchased your annuity from, if you don't already possess one. Read your prospectus to determine whether you can alter your payout method or defer payment from the annuity. Always read the prospectus before purchasing a variable annuity.
Deferred annuities differ from annuities with deferred payout schemes. A deferred annuity constitutes one in which contributions appreciate without taxation. The government only taxes the income in a deferred annuity upon withdrawal. The IRS enacted this scheme to encourage retirement saving. Variable annuities constitute a form of deferred annuity. The question of whether you can defer payments on an annuity ultimately relates in no way to whether you own a deferred annuity, despite the overlap in terminology.
- Charles Schwab: Variable Annuities
- Mass Mutual: Variable Annuities
- Vanguard: Annuities FAQ
- "High-Powered Investing All-In-One For Dummies"; Amine Bouchentouf et al; 2008
About the Author
Will Gish slipped into itinerancy and writing in 2005. His work can be found on various websites. He is the primary entertainment writer for "College Gentleman" magazine and contributes content to various other music and film websites. Gish has a Bachelor of Arts in art history from University of Massachusetts, Amherst.