Deferred Annuity - 401k Retirement Glossary
A Deferred Annuity is an annuity contract that delays the payment of annuities (cash distributions) until the investor wants to receive it. The payment of these annuities can be periodic (example monthly, quarterly, semi-annually or annually) or a lump-sum cash distribution. Deferred Annuity Plans have 2 phases:
1) Phase 1 - Savings Phase
In the savings phase, the investor contributes periodic payments or contributions that accumulate interest and grow with the powerful effects of compound interest.
2) Phase 2 - Income Distribution Phase
This is when after contributing towards the Deferred Annuity plan for years, the investor retires and wants his money back (in the form of periodic payments or a lump sum cash distribution).
The advantages of a Deferred Annuity plan include tax-free growth. All the contributions you make towards a Deferred Annuity plan are tax-free up until you start withdrawing from the plan.
Many investors choose to allow their beneficiaries to cash in their Deferred Annuity plans upon their death.