Annuities are unique products in that they provide the owner with tax-deferred growth, much like an IRA or a Roth IRA.

Annuities can provide the owner with some tax benefits, in that the growth of the principle grows tax-deferred. Once you are ready to withdraw the money, your earnings will be taxed at your ordinary income tax rate, though the amount you contributed to the annuity will not be taxed.

The economic benefit of placing taxable money in an annuity generally depends on the existing capital gains tax rate and ordinary income tax rates, which could easily change depending on what political party is in power and what their legislative goals are.

If the capital gains rate stays well below an investor’s ordinary income tax rate, the tax benefits of an annuity are questionable.

Placing an IRA or a qualified plan into an annuity also makes little sense, since the investor is already receiving tax-deferred growth.

What Payout Options Do I Have?
What are the Basics of Annuities?