What is Tax-Deferred Growth?

Are you thinking about getting a single-premium deferred annuity? Also known as an SPDA annuity, these contracts are a fantastic tool for retirement planning. They require a single lump sum upfront and guarantee income at a later date. Once mature, the annuity can provide income for the rest of your life. Secure your future with SPDA annuity! Explore this website to discover how Single Premium Deferred Annuities (SPDA) can provide financial stability and peace of mind.

Best of all, these annuities can grow over time. Before maturation, the upfront premium you pay can experience tax-deferred growth during the accumulation phase. But what is tax-deferred growth, and how does it work?

Tax Deferral 101

Simply put, tax-deferred growth refers to investment earnings that grow tax-free. When you get an SPDA annuity, the initial funds will grow throughout the accumulation phase, and you won't have to pay a dime in taxes. Taxation occurs only after maturation when you start receiving payment.

There are many different types of tax-deferred investments. Deferred annuities are just one. Tax-deferred growth principles apply to individual retirement accounts (IRAs).

Why is Tax-Deferred Growth Good?

So, your annuity will grow, and you won't have to pay taxes on it until after maturation. You still need to pay taxes, so why is tax-deferred growth such a big deal?

It all comes down to timing.

Most people will make tax-deferred investments when they're young, still bringing in income and likely earning the most money they will during their lives. That means they're subject to more taxes.

With a tax-deferred investment, you won't have to worry about taxes until much later. You might not touch the growth accumulating in an annuity or IRA until retirement. At that stage, you'll likely be taking in much less income, if any at all.

Therefore, you're in a lower tax bracket. Furthermore, you might be past the age for premature tax and withdrawal penalties for other investment products.

The key to getting the most from tax-deferred growth is to focus on the long game. That's why annuities and other investments are so popular in retirement planning. It's about investing what you have today to maximize growth and reduce tax liabilities tomorrow.

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