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InvestHub.com's
Finance Dictionary and Glossary of Investment Terms

Annuity, Deferred  

Definition 1.

An annuity contract for people who want to save on a tax-deferred basis for many years, then convert to a payout schedule once they retire. When purchasing such an annuity, be particularly wary of potentially high fees and expenses. Most companies do not charge an initial commission, or load. Instead, they levy a substantial surrender charge of as much as 10 percent of your principal if you want to cash out or transfer your annuity to another company within the first five or ten years of the contract. However, some annuities permit a free withdrawal provision after the first year and for every year thereafter that surrender charges apply. This allows you to withdraw a certain percent (usually 10 percent) of the accumulated account value. Note that prior to age 59 1/2 these partial withdrawals would be subject to a penalty tax by the IRS.Most annuity sellers also charge annual maintenance fees of $25 to $50 to cover the administrative costs of maintaining an account. Most annuity charges do not apply to immediate annuities because once you have purchased the contract, it cannot be surrendered.
 
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