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Are annuity service fees tax deductible?

Chelsey Tucker graduated with a Bachelor of History degree from Metropolitan State University in 2019. She now writes about insurance with her specialty being life insurance and has been quoted...

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Dan Walker graduated with a BS in Administrative Management in 2005 and has been working in his family’s insurance agency, FCI Agency, for 15 years. He is licensed as an agent to write property and casualty insurance, including home, auto, umbrella...

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UPDATED: Mar 19, 2020

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Are annuity service fees tax deductible?Annuity service fees are not tax deductible. The good news is that the tax benefits that the annuity does offer are, in fact, abundant.

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Since the investment forming the bulk of the annuity is tax deferred, any investor utilizing the annuity as part of his retirement savings is sitting on a pile of money that Uncle Sam can’t touch until the investor himself begins making withdrawals. Even then, only a portion of the fund—that of the accrued interest—is actually taxable.

How can I minimize the damage to my wallet from service fees?

You can find the lowest service fees by doing a thorough rate comparison using an Internet tool like the one located right here on this page. Simply type your zip code into the box above and you will find the details about a host of annuity options offered by insurance companies from Connecticut to California.

While annuity service fees are not tax deductible, you can find significant savings by shopping around for the annuity with the lowest fee.

What kind of service do I get for my money when I use an annuity?

The annuity is a tried and true element in many retirement savings portfolios. It is a contract that says you will provide a certain amount of money that the insurance company will then manage. Your contribution is guaranteed, meaning that you are entitled to withdraw the money for the duration of your retirement.

Most investors choose to begin making withdrawals (a.k.a. “annuitizing” their investment) after a period of time ranging from 3 to 15 years. They take it in the form of periodic payments much like the checks they used to receive while gainfully employed. The annuity allows retirees a sense of security, stability, and comfort that not many investments can provide.

The annuity contract stipulates the amount of the periodic withdrawals based on a formula that takes into account the amount of the investment, the interest rate, and the average life expectancy. The longer you live, the more you benefit from this formula.

There are options in how you receive an annuity, like the “lump sum refund,” that make it possible for heirs to access any money left in the investor’s account upon his death. Investors who choose this option are entitled to slightly less per withdrawal while alive than those who choose the “life only” option. The life only annuity is a way of saying that the investor agrees to leave any unused funds to the insurance company when he dies.

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What are the tax benefits of an annuity?

The annuity makes it a little more difficult for Uncle Sam to get his hands on your hard-earned money. Your initial contribution is tax deferred, meaning you will not have to pay any taxes until you begin making withdrawals from that account. It also means you will accrue interest at a faster rate since the amount of your investment is not being depleted by taxes.

When it comes time to begin making withdrawals, you can plan the timing in such a way to minimize the tax damage.

How does the annuity compare to other retirement planning options?

The annuity can work very well with other elements of a retirement plans such as IRAs, pensions, and Social Security. The annuity is one of the most personalized retirement planning tools. There are no maximums when it comes to the size of your contribution. How much you want to put in, how long you want it to grow, and when you want to begin making withdrawals is all up to you. The annuity allows you to orchestrate your retirement savings plan.

Since annuity service fees are not tax deductible, how else can I save money?

Shopping around is the best course of action you can take when it comes to finding the best annuity for you. The Internet makes this easy thanks to tools like the annuity rate comparison guide (which can be accessed from this page). Though annuity service fees are not tax deductible, you will still save money when you do a thorough search of all the available options.

Type your zip code into the box above right now, and you will find annuity options from many different insurance companies that service your area. Don’t waste any time in planning a comfortable retirement. Enter a zip code and receive annuity quotes now!

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