Three-year rate guarantee annuities are very useful for individuals who know that in a shorter timeframe they will need that large lump sum of money for other financial commitments. This way you can ladder funds through annuities over a series of short term years always knowing that you’ll have a significant amount of liquid assets available to you on a regular basis without penalty.
As with many other interest sensitive investments, the longer you’re willing to commit your money to one investment the higher rate of interest you will earn. A tax deferred fixed annuity is no different with the exception that during the accumulation years you will reap the benefit of tax deferred growth on your money until you use it.
What Happens At The End Of My Annuity Term?
At the end of your annuity term you’re not obligated to remove your money, in fact you may likely wish to move your money to another company for an even higher rate of interest and you can do so without incurring any income tax.
The IRS allows, under their 1035 tax free exchange, for you to transfer an existing annuity’s entire value including your tax deferred growth to a new annuity contract registered in the same owners and annuitants names without being reported as income.
Benefits Of The 1035 Tax Free Exchange
The advantage to the 1035 exchange is that it gives you the freedom to explore better performing opportunities as they become available to you in the future years without concerns over income tax implications.
Avoiding paying taxes on the tax deferred growth allows you to continue to grow the entire annuity value with another company that may be more favorable for you at that time.