An annuity is typically part of a retirement investment.
The money contributed to an annuity may be with after-tax dollars. When you contribute after-tax savings to an annuity, you can put as much money in as you like.
However, there may be restrictions on the amount you may contribute with after-tax dollars if your annuity is a Roth IRA.
Before you put after-tax dollars into an annuity, it may be advisable for you to put the maximum pre-tax amount into a retirement plan such as your IRA, SEP, 401(k) or 403(b).
When you withdraw money from a deferred annuity, you can spread the tax liability out for the rest of your life, no matter how long you live.
Some of the earnings are included in each payment and are taxable.
Meanwhile, tax-deferred earnings continue to accumulate on the remaining principal and earnings that have not yet been distributed.
Thus, receiving distributions as periodic payments after retirement may further reduce your income tax liability if you are in a lower tax bracket.
If the tax-deferred aspect of a deferred annuity is important to you, make sure the expenses do not outweigh the tax benefits.
This can be a tough judgment call, and you should consult a tax adviser for assistance in making this determination.
Variable annuities purchased with after-tax dollars allow you to transfer money from one account to another without triggering a taxable event.
In other words, if you transfer money to a different funding option within your variable annuity, you will not have to pay taxes on any earnings you have made.
This reallocation of your money allows you to adapt to changing market conditions, or to adjust your investment goals because of life events tax-free, without worrying about reporting and taxing.
This article is published on KansasMoney.gov. Find more information by contacting these state agencies: