Many people are familiar with traditional certificates of deposit and use them as an investment vehicle because they are more familiar and accustomed with CDs. However, Tax-Deferred Fixed Annuities can be a smart alternative to CDs depending on your financial situation and investment objectives. As with any investment, issues such as age, income and suitability should also be considered when making financial decisions.
| Tax-Deferred Annuities | Certificates of Deposit |
|---|---|
| Reporting and Taxing of Interest Income | |
| The earnings from a Tax-Deferred Annuity are neither reportable nor taxable until they are withdrawn.1 | The interest earned from a traditional CD is both reportable and taxable as it is earned, regardless of whether it is received or left to accumulate.1 |
| Effect on Social Security Benefits | |
| Interest income from a Tax-Deferred Annuity is not reportable until withdrawn; it is not included in the calculations for Social Security crossover taxation, preserving the value of Social Security benefits. | The interest income from a traditional certificate of deposit is included in the calculations used to determine taxation on Social Security benefits. Both taxable and tax-free earnings are reportable and must be included in this calculation. |
| Withdrawal Charge Schedule | |
| Generally, Tax-Deferred Annuities are long-term instruments and have no maturity date. Instead, the insurer imposes a schedule of declining early withdrawal charges, which are generally entirely eliminated after a designated period of time. | Traditional certificates of deposit are generally intended for short-term investment and have preset early withdrawal penalties that vary according to the term. These penalties are renewed every time the certificate is renewed. |
| Emergency Access | |
| Depending on the type of Annuity selected and its provisions, penalty-free withdrawal options may be available to clients so they can access a portion of their funds.1 | Funds in a certificate of deposit cannot be accessed in full or in part during its term without incurring withdrawal penalties.1 |
| Loss Protection | |
| Tax-Deferred Annuities are not FDIC-insured; however, they are backed by the financial strength of the insurer, without federal limitations as to denomination or styling. | Certificates of deposit are insured by the FDIC up to $100,000 per account, per institution. |
| Benefits | Bank CD | Annuity |
|---|---|---|
| Tax-Deferred Growth | No | Yes |
| Bonus Available on Premium | No | Yes |
| Guaranteed Lifetime Income | No | Yes |
| Loan Privileges | No | Yes |
| Potential Social Security Tax Advantage | No | Yes |
| Potential Disability Benefit | No | Yes |
| Avoidance of Probate Costs and Delays | No | Yes |
| Flexible Pemium | No | Yes |
| Potential for Higher Yields | No | Yes |
| Withdraw for RMD Penalty Free | No | Yes |
| Nursing Home Benefit | No | Yes |
| Penalty-Free Access to a Portion of Money | No | Yes |
| FDIC Insured | Yes | No |
Tax-Deferred Accumulation Brings Strength to Your Retirement
This example is used for illustrative purposes only. The return is not indicative of any specific product and is not intended to be a projection of future values. Sales charges and administrative fees are not taken into account and would reduce the Tax-Deferred performance shown if they were. Actual results will vary.
Actual returns will vary depending on your specific tax rate (which may be more or less than the figures shown). A lower tax rate on capital gains and dividends would make any gains in the taxable account more favorable. You should consider your investment time horizon and tax brackets, both current and anticipated.
For specific tax advice, please speak to your tax advisor.
- Withdrawals from tax-deferred annuities prior to age 591/2 may result in a 10 percent federal income tax penalty based on current federal tax law. This information should not be construed as legal or tax advice. Customers should consult their attorney, accountant or tax advisor on specific points of interest.
- Hypothetical rate used for illustrative purposes only. Not intended to project future incomes.
