What Is Tax-Sheltered Annuity?

Video Transcript

"This is financial adviser Patrick Munro. We're going to talk about tax sheltered annuities. What are they? Can you be sheltered from taxes? The only vehicle that you really can be sheltered from taxes is a annuity product that is qualified. The word is qualified versus non-qualified. If it's qualified that means that the government allows you to put money into your annuity and not pay taxes on the growth inside the annuity. Therefore the name, tax sheltered annuity. This works in your favor when you're young because you have more time to put money into the financial instrument. And then once you receive, get to the age of retirement and you start to take money out of the annuity, then you have to pay taxes on it. There is a time when if you were of an older age and you didn't ever want to take money out of the annuity, the government shows up and they make you take money out and therefore, have to pay taxes. That's called required minimum distribution. RMD. When you've hit 70 1/2. Well, by that time, you want to be fully retired and enjoying your retirement life. And so tax sheltered annuity is the way to go to accumulate your money. And once you get to age 70 1/2, the government will then force you to spend down some of it so that they can get the taxes that they have been so generous in allowing you not to have to pay over the years. That's the benefit of tax sheltered annuities. I'm financial adviser Patrick Munro."