| Immediate annuities
|| Deferred annuities
| Payout begins shortly after the premium is paid.
|| Payout begins at some specified future date, allowing time for accumulation.
| Purchase with a single premium.
|| Purchase with either a single premium or periodic premiums.
| Contract is usually irrevocable--after you enter into the contract, it can't be changed.
|| Contract can be surrendered or exchanged for another annuity (Section 1035 exchange).
| Assets do not accumulate on a tax-deferred basis. They are distributed using a predetermined formula, such as for life, for a fixed period, in a fixed amount, and so on.
|| Assets accumulate on a tax-deferred basis. When distributions begin, they are made using a predetermined formula, such as for life, for a fixed period, in a fixed amount, and so on.
| Each distribution is part tax-free return of premium and part ordinary income, depending on age and the distribution method.
|| Distributions are first made from any gains/ interest earned and taxed at ordinary income tax rates; tax-free return of premium is distributed last.
| No tax penalty on lifetime payments started before age 59½. 1
|| A 10 percent nondeductible tax penalty is assessed on the gains (or interest) withdrawn or annuitized before the annuitant reaches age 59½, unless an exception applies.