Tax-Deferred and Tax-Free Investments

Annuities

Annuities are another way to defer taxes until retirement. With an annuity, you put after-tax money in, and the earnings grow tax-deferred. That is, the amounts in the annuity are invested and the earnings are not taxed until you make a withdrawal. Like IRAs and other retirement plans, you pay a 10% penalty if you take the money out before age 59 1/2, with certain exceptions. And your annuity may have fees and additional surrender charges for taking the money out early. The rule for annuities: put your money into any qualified retirement plans that you have access to, and into Roth or deductible IRAs, then into non-deductible IRAs before considering an annuity. All of these can be more flexible and may have more benefits than annuities. For more information, see the sections Fixed Annuities and Variable Annuities.

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