Tax deferred annuity rates have now climbed to slightly over 5% year, guaranteed for 5 or more years.  This is an exciting opportunity for those seeking to accumulate money safely, at a conservative guaranteed rate of interest. 

A tax deferred annuity is like a certificate of deposit, issued by a major, financially solvent insurance carrier.  It has a huge tax benefit in that, no taxes are due on gains in the value of the contract until you take money out. For long term, safe accumulations, there are no better options. 

In a taxable saving account, a 5% interest rate is really worth about 3% in the highest personal income tax bracket.  In contrast, the annuity crediting 5% is really delivering an interest rate equivalent of 8%, since no tax is due on the earnings. Unlike other retirement saving vehicles, tax deferred annuities have no required distribution schedules. You can literally maintain the status of deferred taxation for your lifetime – and beyond if you use a spousal continuation. 

We do not advocate that anyone put all of their long term funds into tax deferred annuities.  Like any other investment or savings vehicle, these should represent a part of an overall diversified, asset allocation strategy.   

If you believe that our revenue starved government is likely to increase taxes in the coming years, these options are certainly attractive. Funds are going to be needed to prop up social security and medicare, as well as support our many international involvements. 

Diligence is critical.  Just like any financial product, annuities should be evaluated as to the terms of the interest rate, the stability of the company issuing the contract, and the liquidity features, should you need to withdraw funds.