What are Tax Advantages of Fixed Index Annuities?
The income earned on Fixed Income Annuities is tax-deferred during the accumulation phase of the contract. You will have to pay ordinary income tax on your earnings – instead of on premium payments – when you withdraw money from FIA account. Tax deferred growth allows the accumulated amount of FIAs to grow substantially during the term of the contract. This results in greater amount of savings for your retirement.
The tax deferred benefit is also provided by other retirement plans like 404(k)s and IRAs. However, the government puts a yearly contribution limit on these two plans. Buying a fixed income annuity within the traditional retirement plan also does not provide the same tax benefits as investing in an individual FIA account.
No such restrictions are present in qualified FIAs that also come with additional features like guaranteed death benefit and lifetime income options, thereby making them a better option as compared to traditional retirement saving plans. The tax-deferred income of FIAs is compounded over time with the actual amount of income linked to the stock index performance during the contract period.
And with no annual contribution limit, your saving amount will grow to a large amount at the time of your retirement.
