How your fixed annuity money will grow will be simply spelled out in your contract. This may be:
1. Contributions will be tax-deductible if the annuity is tax qualified, and investment earnings will increase tax-deferred until the annuitant begins to earn income
Like IRAs and other retirement accounts, this tax-deferred income can grow and compound faster over time than when the money is in a regular, taxable account.
2. The annuitant will have to pay the tax for them at their normal income tax rates once the payouts start — not capital gains rates, which are usually lower
That’s true for most types of retirement accounts, too. By then, though, the annuitant may be in a lower tax bracket, as many individuals are in retirement.