People in their 50s or older in particular can boost savings with tax deferral and/or create their own pension. Rates are up on AnnuityAdvantage.com.
MEDFORD, OR / ACCESS Newswire / March 11, 2025 / Annuities are tax-deferred, so you won't pay any tax as long as the interest is reinvested in the annuity, and interest rates are high for now.
"Tax deferral is powerful," says Ken Nuss, CEO of AnnuityAdvantage.
Say you're earning 4% on a bank certificate of deposit and are in the 25% combined federal and state income tax bracket, you'll net just 3% after taxes.
"Over 10, 20, or more years, having one-fourth of your money unavailable for compounding will mean a lot less money in your account," he says.
CD-type annuities pay guaranteed high rates,
One type of annuity, the multi-year guarantee annuity, or MYGA, acts much like a bank certificate of deposit, with a set guaranteed rate for a term. But it adds tax deferral in a nonqualified account.
You can get up to 5.66% on a five-year product or 5.35% for a three-year guarantee today.
The smallest amount you need (minimum premium) to get started varies, but a few MYGAs require just $1,000, putting them within reach of people with modest savings. This type of fixed annuity usually provides some penalty-free withdrawals, especially after the first year, so there's most often some unpenalized liquidity.
Indexed annuities: growth potential without downside
The fixed index annuity offers an interesting but more complex way to boost your retirement savings and also provides tax deferral. It offers both growth potential and complete protection from any downside volatility in the stock or bond markets. The minimum premium is $5,000 or more.
Your own private lifetime pension
Income annuities offer a different route to retirement security. Instead of building the value of your savings, they provide a guaranteed monthly income, which can be for life (the most popular option) or a certain number of years.
"You're creating a private pension," Nuss says.
If you're not retired, you may want to choose a deferred income annuity, which will start paying income at a future date you specify. Retirees who want income now usually choose an immediate annuity instead.
A single-premium income annuity may require as little as a $10,000 minimum payment, but that's unusual. A more typical premium deposit is $100,000 plus.
The major caution about buying annuities is that withdrawals of interest before age 59½ are subject to a 10% IRS penalty plus ordinary income tax. Early withdrawals beyond the penalty-free amounts allowed by the contract will also result in a surrender charge from the insurer.
About AnnuityAdvantage
Annuity expert Ken Nuss is the founder and CEO of AnnuityAdvantage, a leading online provider of fixed-rate, fixed-indexed, and lifetime income annuities. Ken is a nationally recognized annuity expert and widely published author. A free rate comparison service with interest rates from dozens of insurers is available at https://www.annuityadvantage.com or by calling (800) 239-0356.
Media contact:
Henry Stimpson
henry@stimpsoncommunications.com
SOURCE: AnnuityAdvantage
