annuity

Definitions (2)

1. A contract sold by an insurance company designed to provide payments to the holder at specified intervals, usually after retirement. The holder is taxed only when they start taking distributions or if they withdraw funds from the account. All annuities are tax-deferred, meaning that the earnings from investments in these accounts grow tax-deferred until withdrawal. Annuity earnings are also tax-deferred so they cannot be withdrawn without penalty until a certain specified age. Fixed annuities guarantee a certain payment amount, while variable annuities do not, but do have the potential for greater returns.
Both are relatively safe, low-yielding investments. An annuity has a death benefit equivalent to the higher of the current value of the annuity or the amount the buyer has paid into it. If the owner dies during the accumulation phase, his or her heirs will receive the accumulated amount in the annuity. This money is subject to ordinary income taxes in addition to estate taxes.
2. More generally, a series of payments of set size and frequency, often to a retired person.

Use annuity in a sentence

My wife and I recently purchased an annuity as part of our overall retirement plan with the intent of generating greater income in later years.

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After waiting many years with fingers crossed and bank accounts nearly empty, Mark finally began to receive the long-awaited return of his annuity.

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The old couple decided they did not want to work any more and that they had built up enough in annuity to live off the rest of their lives peacefully.

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inherited IRA annuitant
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