07 Sep Why won’t my annuity keep growing?

Q. Is the balance in an annuity frozen once you begin annuitizing it? I have a small annuity that I opened with a well-known firm about 20 years ago with after-tax money. I am currently in retirement and taking my RMDs. The representative said if I begin annuitizing, unlike an IRA or 401(k), the annuity stops growing. I know there are various types of annuities, but somehow that doesn’t seem fair.
— Can that be right?

A. Yes, it’s probably right.

Once you annuitize the account, you lose control of the asset, said Gregory Chebuske, an Accredited Investment Fiduciary with U.S. Financial Services in Fairfield.

In return, the insurance company is guaranteeing you a stream of income you cannot outlive, very similar to a pension or defined benefit plan.

However, Chebuske said, you do not have to annuitize your contract if you are under the age of 95.

“You can continue to have it grow tax-deferred and take withdrawals systematically or as needed,” he said. “If you are age 95 and you do not want to annuitize the contract, you can simply withdraw the money.”

But you’d have to pay tax on any deferred growth upon surrendering the contract if it is non-IRA. If the annuity is an IRA, you can transfer to another IRA account and defer paying the tax, he said.

When you purchase an annuity, it is either an immediate annuity or tax-deferred, Chebuske said.

“An immediate annuity is a single lump sum deposit with an insurance company in return for an immediate stream of income you cannot outlive,” Chebuske said.

Because you are just beginning to consider annuitization, it seems you have a tax-deferred annuity, he said.

Think carefully about your options for the money before you make any moves, and learn more about annuities in general here.

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This post was originally published in September 2017.