- A deferred annuity helps your money grow tax-deferred now and turn into income later.
- Amica offers fixed options for either a lump sum or ongoing contributions.
- People often choose them for predictability, tax advantages and future income.
- They’re built for long-term planning, so early withdrawals may come with taxes or fees.
What Is a Deferred Annuity?
Deferred annuities are long-term insurance contracts designed to help you grow money now and turn it into income later. If you’re looking for a tax-deferred annuity that can support retirement planning with more predictability, this type of product may be worth considering. Some deferred annuity plans are funded with one lump sum, while others let you contribute over time. And because Amica offers fixed annuities, customers who value stability may also appreciate the role fixed deferred annuity rates can play in a long-term plan.
Key Takeaways
Quick takeaway: A deferred annuity may make sense if you want tax-deferred growth, protection from market swings and the option to create guaranteed income later in retirement.
How do deferred annuities work?
You buy a deferred annuity from an insurance company and fund it with premiums. In general, deferred annuities have two main phases:
- Accumulation phase — Your money earns interest on a tax-deferred basis.
- Payout phase — You begin taking withdrawals or convert the contract into a stream of income payments.
The way your contract grows depends on the type of annuity you choose. With a fixed annuity, growth is based on the interest rate in your contract, not on stock market performance. That can make fixed annuities a good choice for people who want clearer expectations around future value.
Which deferred annuity is right for you depends on how much you want to contribute, how soon you expect to need income and whether you prefer a single deposit or ongoing contributions. Amica offers fixed annuity options that can support different retirement timelines. You can explore annuities for a broader overview.
- Multi-Year Guaranteed Annuity (MYGA) — A MYGA is typically funded with a lump sum and earns a guaranteed rate for a set term. It may appeal to people who are closer to retirement or who want to lock in fixed deferred annuity rates for a known period.
- Flexible Premium Deferred Annuity (FPDA) — An FPDA is designed for people who want more flexibility in how they contribute over time. It can fit savers who are still building retirement assets while balancing other financial priorities.
An overview
| Deferred annuity plans | How they’re funded | What may make them appealing |
|---|---|---|
| MYGA | Usually a lump sum | Locked-in guaranteed rate for a set term |
| FPDA | Initial premium plus ongoing contributions | Flexible saving approach with tax-deferred growth |
Benefits and trade-offs of deferred annuities
Deferred annuities can be appealing if you want a retirement product built around steady growth and future income. But like any long-term insurance contract, they come with trade-offs.
| Why people choose deferred annuities | Trade-offs to consider |
|---|---|
| Tax-deferred growth Option for guaranteed income in retirement Predictable growth with fixed annuities Flexible use of withdrawals once available No medical exams or health questions are required to qualify | They’re meant for long-term planning, not short-term cash needs Withdrawals can trigger surrender charges and possible tax penalties Rates, features and liquidity vary by contract |
Why some retirees and pre-retirees choose deferred annuities
- Predictability: Fixed annuities are built around guaranteed interest and income options that aren’t tied to daily market movement.
- Tax-deferred growth: Earnings grow without current federal income tax until you withdraw them.
- Planning flexibility: Depending on the contract, you may be able to choose how you contribute, when income starts and how often payments are made.
Deferred annuities can also include a death benefit, depending on the contract terms and payout option selected.
How interest builds in a deferred annuity
With fixed deferred annuities, the insurance company credits interest according to the terms of the contract. That means your accumulation value can grow steadily over time without being directly exposed to stock market losses.
The accumulation phase is the period when your money stays in the contract and earns interest. Later, if you want retirement income, you can move into the payout phase and choose income based on a specific period of time, lifetime payments or another option available under your contract.
Need more info? If you’re comparing products, it may help to review current interest rates along with the broader retirement resource center.
How a tax-deferred annuity is taxed
A tax-deferred annuity lets earnings grow without current federal income tax. When you take withdrawals, the taxable portion is generally taxed as ordinary income.
The way your annuity is funded affects how withdrawals are generally taxed:
| Funding type | General tax treatment |
|---|---|
| Qualified annuity | Funded with pre-tax dollars. That means withdrawals are generally fully taxable as ordinary income. |
| Non-qualified annuity | Funded with after-tax dollars. That means the earnings portion is generally taxable and principal is typically returned tax-free. |
State tax treatment can vary, so it’s smart to review your contract and consult a tax professional if you have questions about your specific situation.
Also keep in mind that withdrawals before age 59½ may trigger a 10% IRS penalty in addition to ordinary income tax, unless an exception applies.
Questions to ask before buying
- When do you plan to start drawing income from the contract?
- Do you want to make one contribution or add money over time?
- How important is protection from market volatility?
- Will you need access to the money in the near future?
Also, keep in mind that deferred annuities may work alongside other savings vehicles rather than replace them. For additional context, explore the pros and cons of annuities and an overview of retirement planning.
Learn more about Amica’s annuity offerings
or call 800-234-5433 to speak with an Amica annuity representative
Get an annuity quote today
FAQs about deferred annuities
A deferred annuity is designed to grow money before you need it. An immediate annuity is typically funded with a lump sum and starts paying income soon after purchase.
They may be a fit for people who value predictability and want to avoid direct market exposure. Fixed deferred annuities focus on guaranteed contract terms rather than market-based returns.
These rates are set according to the contract terms. Depending on the product, the rate may be guaranteed for a defined period or renewed under new terms at the end of that period.
With a fixed annuity, your contract value is not tied directly to stock market losses. But you can still face surrender charges, tax consequences or lower-than-expected flexibility if you need funds earlier than planned.
We’re here to help you determine which annuity may fit your goals. Learn more about annuities or call 844-753-5433 to speak with an Amica annuity representative today.
Policies issued by Amica Life Insurance Company. NAIC No. 72222.
* Standard form numbers ICC22 FPDA-01 and ICC21 MYGA-01
Guarantees are subject to the claims-paying ability of Amica Life.
Withdrawals and additional contributions are subject to government restrictions and/or contract limitations.
Amica annuities may not be available in all states. Guarantees are subject to the claims-paying rating of your insurer. Fixed annuities are not insured or guaranteed by any agency that insures deposits.
Your Policy, Policy Declarations or Amended Declarations in effect on the date of loss is the primary source of reference for your coverage, coverage limits and deductible amounts.
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ALIC02924 Jun-24