Deferred annuities act like other retirement funds. You contribute a set amount each month on a tax-deferred basis. When you reach the age of 59.5, you can start making withdrawals. If you try to take money out of an annuity before that age, you’ll face a 10 percent withdrawal tax penalty in addition to the income tax.
You also can’t borrow against an annuity. You can take a loan from a 401(k) without damaging your credit score. But funds that you put into an annuity remain locked up until the age of 59.5. So when you’re considering buying an annuity, do make sure that you’re packing away money that you know you won’t need except in future instalments. In the meantime, you should have access to other liquid assets.