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Using an annuity for retirement purposes may be a very good way to prevent the Internal Revenue Service from taking large chunks of your retirement benefits or large amounts of income due to you in lump sums. This can save you thousands in tax dollars, while increasing the value of the original amount you have invested. Learn how to do this by reading through to the end of this article.

Shielding the IRS from your Retirement Benefits

Most states within the United States levy a tax on pension income or other types of retirement benefits. In some cases, these rates are almost 20% or more leaving the retiree feeling cheated. While some states have retirement income friendly laws, some have tax levies of between 20% and 30% for such incomes. Do not think of moving to the friendly states yet, as annuities can still be of help in your current location.

These tax dollars could be prevented by directing the overall retirement income into an annuity plan, which will also generate money for you in the coming years. One type of annuity that can help in this regard is an immediate annuity as this plan allows retirees to access payouts soon after the lump sum payment is made. The other great thing about annuities is the fact that the principal invested is not subject to any form of taxation, except the interest earned on the actual investment.

Tax Benefits of Annuities Compared to Other Investment Plans

If we take a look at annuities in comparison to other financial investments, we will notice that annuities offer income increase while also deferring tax payments for long periods of time. In addition, they also offer the lower risk since the principal investment and a specified amount of income is usually guaranteed for certain number of years. For instance, stocks and bonds are bound to fluctuate in line with market prices while the dividends accrued are also taxed.

Also, annuities are the only type of investment plan that is easily converted or used as a retirement savings plan, whereby you get fixed or variable payouts for a number of years or over your entire lifetime.

However, great care must be taken before you conclude on using an annuity for retirement plan, especially in a bid to reduce your tax exposure. It is important that you look through the different deals available on the market from different annuity plan providers. Also, you have to compare rates and read the attached terms and conditions before making a decision on the type of annuity and particular provider.

To get started, enter your zip code on the top of this page, and then answer some basic questions. This will help you to compare annuity plans from multiple providers for FREE to determine your highest eligible rate. It is important to provide accurate questions to these answers as our pool of providers will provide you with different rates depending on your individual circumstance and situation.