A tax deferred annuity can assist you in overcoming many of the retirement planning obstacles you may face. A tax deferred annuity is a special savings account established with an insurance company that can be a single premium or it can allow for multiple deposits. All earnings on money contributed to the annuity grow on a tax-deferred basis. Because of the special tax treatment on these accounts and the fact that they are designed to provide funds in retirement, any withdrawals of earnings prior to age 59-1/2 are subject to income tax and a 10% penalty, just like an IRA. At retirement, the funds accumulated in a deferred annuity can be converted into an income stream that cannot be outlived. Only a portion of each annuity income payment that represents earnings on the original annuity deposits is subject to income tax as it is received.

There are three primary types of deferred annuities. A "fixed" annuity is where the insurance company determines a guaranteed interest crediting rate. Additionally, the principal or all of the deposits made into the annuity are guaranteed by the issuing insurance company. An "indexed" annuity's crediting rate is determined by a formula and is most commonly measured against the S&P 500 stock index. The indexed annuity will also have a low guaranteed interest rate and the principal is guaranteed on these annuities as well. A "variable" annuity provides tax favored access a wide array of mutual fund like investments. Most variable annuities do not have guarantees associated with the returns or the original principal that is being deposited.

We believe that there are several key factors that go into deciding the annuity that is best suited for you. Our assessment of any prospective annuity purchase begins with evaluating the strength of the issuing insurance company. Additionally, we believe that understanding the interest rate crediting methods as well as the surrender charges is critical to the successful use of these tax favored investment vehicles. Riders that are designed to "enhance" certain features of the annuity, such as guaranteed income, can be added. We believe that is best to fully understand the costs of the rider before purchasing.